Financial Infrastructure and Economic Performance ? Causality-Cointegration using Unrestricted VECM
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Date
2025-03-01
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Abstract
The nexus between stock market activity growth and financial intermediary
development within the economic activity for India is investigated over the postliberalization period ranging 1993-2011 using Unrestricted Vector Auto Regression
(VAR) based on Error Correction Model (ECM). Both in the short term and the long
term models we illustrate the relationship of the time-series and the causalitycointegration properties in its relations. The coherent picture from Granger-causality
test based on Vector Error Correction Model (VECM) reveals that in the long run
stock market development granger-causes financial intermediation growth. Our
findings suggest that the evolution of the stock market tends to, or is more likely to
stimulate and promote economic growth when monetary authorities adopt liberalized
investment and openness policies, improve the size of the market and de-regulate the
stock market. The financial market intermediation development indicators have a
highly positive causation coefficient with the stock market activity implying that they
have developed together in the Indian economy.