A simultaneous equations model of finance and growth : FIML estimates for India

B. Bhaskara Rao; Artur Tamazian

doi:10.1080/00036841003689747

A simultaneous equations model of finance and growth : FIML estimates for India

B. Bhaskara Rao, Artur Tamazian

Research output: Contribution to journal › Article › peer-review

Abstract

In the relationship between economic growth and financial development, it is generally conceded that both variables are likely to be interdependent. However, no attempt has been made so far to estimate a simultaneous equations model to test whether finance causes growth or vice versa. This article uses the Full Information Maximum Likelihood (FIML) method to estimate a two equations model of growth and finance for India to determine the strength of this interdependence. Our results show that Financial Developments (FD) have a small but significant permanent growth effect. However, there is no evidence to support the view that 'where enterprise leads, finance follows'.

Original language	English
Pages (from-to)	3699-3708
Number of pages	10
Journal	Applied Economics
Volume	43
Issue number	25
DOIs	https://doi.org/10.1080/00036841003689747
Publication status	Published - 2011

Keywords

India
economic growth
estimation method
financial market
financial system
growth rate

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10.1080/00036841003689747

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abstract = "In the relationship between economic growth and financial development, it is generally conceded that both variables are likely to be interdependent. However, no attempt has been made so far to estimate a simultaneous equations model to test whether finance causes growth or vice versa. This article uses the Full Information Maximum Likelihood (FIML) method to estimate a two equations model of growth and finance for India to determine the strength of this interdependence. Our results show that Financial Developments (FD) have a small but significant permanent growth effect. However, there is no evidence to support the view that 'where enterprise leads, finance follows'.",

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AU - Tamazian, Artur

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AB - In the relationship between economic growth and financial development, it is generally conceded that both variables are likely to be interdependent. However, no attempt has been made so far to estimate a simultaneous equations model to test whether finance causes growth or vice versa. This article uses the Full Information Maximum Likelihood (FIML) method to estimate a two equations model of growth and finance for India to determine the strength of this interdependence. Our results show that Financial Developments (FD) have a small but significant permanent growth effect. However, there is no evidence to support the view that 'where enterprise leads, finance follows'.

KW - India

KW - economic growth

KW - estimation method

KW - financial market

KW - financial system

KW - growth rate

UR - http://handle.uws.edu.au:8081/1959.7/526702

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JO - Applied Economics

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ER -

A simultaneous equations model of finance and growth : FIML estimates for India

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Keywords

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