Stock Market Development and Economic Growth in India: An Empirical Analysis

Srinivasan P. and Karthigai P. (2014), Stock Market Development and Economic Growth in India: An Empirical Analysis, International Journal of Finance & Banking Studies, 5(3), 361-375.

17 Pages Posted: 27 Jan 2015

See all articles by Srinivasan Palamalai

Srinivasan Palamalai

Presidency University; Presidency University

Karthigai Prakasam

Christ (Deemed to be University)

Date Written: January 27, 2015

Abstract

The link between stock market development and economic activity has always been the subject of considerable debate in the field of economics and it raises empirical question whether stock market development influences economic activity or whether it is a consequence of increased economic activity. This study attempts to investigate the direction of causality between stock market development and economic growth in the Indian context. Using the cointegration and causality tests for the period June 1991 to June 2013, the study confirms a well defined long-run equilibrium relationship between the stock market development indicators and economic growth in India. The empirical results show bidirectional causality between market capitalisation and economic growth and unidirectional causality from turnover ratio to economic growth in the long-run and short-run. By and large, it can be inferred that the stock market development indicators viz. market capitalisation and turnover ratio have a positive influence on economic growth in India.

Keywords: Stock Market Development; Cointegration; Granger Causality; Economic Growth

JEL Classification: C22, E14, O16

Suggested Citation

Palamalai, Srinivasan and Prakasam, Karthigai, Stock Market Development and Economic Growth in India: An Empirical Analysis (January 27, 2015). Srinivasan P. and Karthigai P. (2014), Stock Market Development and Economic Growth in India: An Empirical Analysis, International Journal of Finance & Banking Studies, 5(3), 361-375., Available at SSRN: https://ssrn.com/abstract=2556144

Srinivasan Palamalai (Contact Author)

Presidency University ( email )

Bangalore, Karnataka, KS 560064
India
9611273853 (Phone)

HOME PAGE: http://https://presidencyuniversity.in/school-of-management-2/dr-p-srinivasan/

Presidency University ( email )

Bangalore, KS 560089
India

Karthigai Prakasam

Christ (Deemed to be University)

Hosur Road
Dharmaram PO
Bengaluru, IN Karnataka 560029
India

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