Nexus between Indian Economic Growth and Financial Development: A Non-Linear ARDL Approach

This study examines the nonlinear relationship between financial development and economic growth in Pakistan using the threshold regression model for the period 1980-2017. We also employed quantile regression with 0.25, 0.50, and 0.75 quantiles of conditional distribution. The quantile regression is based on minimizing of sum of squared residuals. The result indicates that economic growth responds positively to financial development when the level of financial development surpasses the threshold value of 0.151. However, when financial development lies below the threshold value (that is, 0.151), its impact on economic growth is negative. Thus, when financial development of Pakistan surpasses the threshold level, it contributes more towards economic growth since greater level of financial development contributes more to boosts economic growth. This finding reveals that economic growth reacts differently to financial development, and the relationship between financial development and economic growth is U-shaped in Pakistan. Among the other variables, physical capital, labor force, and government expenditure exert a positive effect on economic growth. Furthermore, inflation rate and trade openness have an insignificant impact on economic growth. The results of quantile regression also confirm the non-linear relationship between financial development and economic growth in Pakistan. The finding of this study suggests revamping of financial sector policies in Pakistan.

Section: Introductionmentioning

confidence: 99%

How Does Financial Development Impact Economic Growth in Pakistan?: New Evidence from Threshold Model

Tariq¹,

Khan²,

Rahman³

2020

“…Through the partial total decomposition process, a basic variable can be separated into both positive and negative components to analyze dynamic and nonlinear asymmetry. Using the NARDL model, recent studies have found evidence of asymmetric exchange rate effects on stock prices (Ajayi & Mougouė, 1996;Bahmani-Oskooee & Saha, 2015, 2016Cheah et al, 2017;Cuestas & Tang, 2017;Kumar & Paramanik, 2020) According to the author's knowledge, studies of the same topic in Vietnam have not mentioned the potential non-linear dynamic relationship between exchange rates and stock prices. That makes the research results unconfirmed (affirmed) the existence of a close long-run relationship between the variables.…”

Section: Introductionmentioning

confidence: 99%

Linkage Between Exchange Rate and Stock Prices: Evidence from Vietnam

Dang¹,

Le²,

Nguyen³

et al. 2020

The study investigates the asymmetric effect of exchange rate changes on stock prices in Vietnam. We use the nonlinear autoregressivedistributed lag (ARDL) analysis for monthly data from 2001:01 to 2018:05, based on VN-Index stock price collected from Ho Chi Minh Stock Exchange (HOSE); the nominal exchange rate is separated into currency depreciation and appreciation through a partial sum decomposition process. Asymmetry is estimated both in the long-run relationship and the short-run error correction mechanism. The research results show that the effect of exchange rate changes on stock prices is asymmetrical, both in the short run and in long run. Accordingly, the stock prices react to different levels to depreciation and appreciation. However, the currency appreciation affects a stronger transmission of stock prices when compared to the long-run currency depreciation. In the absence of asymmetry, the exchange rate only has a short-run impact on stock prices. This implies a symmetrical assumption that underestimates the impact of exchange rate changes on stock prices in Vietnam. This study points to an important implication for regulators in Vietnam. They should consider the relationship between exchange rate changes and stock prices in both the long run and the short run to manage the stock and foreign exchange market.

“…The results of this study inferred that labor productivity as well as sectoral contribution have favorable effects on growth, welfare and household income of Nepal. Kumar and Paramanik (2020) showed that economic growth rate is affected positively by financial development in the long run, while Luong, Nguyen, and Nguyen (2020) revealed that economic growth indicators have negative and statistically significant impact on the shadow economy. Moreover, Ngo, Cao, Nguyen, and Nguyen (2020) highlighted that FDI is affected by size of market and Nurlanova, Omarov, and Satpayeva (2020) identified that innovative activities is most important factor affecting sustainable development…”

Section: Literature Reviewmentioning

confidence: 99%

Sectoral Contribution to Economic Development in India: A Time-Series Co-Integration Analysis

Solanki¹,

Inumula²,

Chitnis³

2020

This research paper examines the causal relationship between India's economic growth and sectoral contribution to Gross Domestic Product (GDP) and vice versa, in the short-run and long-run, over a 10 years time period. Johansen's method of cointegration is used to study the cointegration between the sectoral contributions to Indian GDP vis-à-vis India's economic growth. Further, the route of interconnection between economic growth and sectoral contribution is tested by using Vector Auto Regression (VAR) model. Special attention was given for investigating impulse responses of economic growth depending on the innovations in sectoral contribution using time-series data from 1960 to 2015. This paper highlighted a dynamic co-relationship among industrial sector contribution and agricultural sector contribution and economic development. In the long run, one percent change in industrial sector contribution causes an increase of 3.42 percent in the economic growth and an increase of 1.12 percent in the primary sector contribution, while in the short run industrial and service sector contributions showed significant impact on economic development and agriculture sector. The changing composition of sector contribution is going to be an important activity for the policymakers to monitor and control where the technology and integration of sectors play a significant role in economic development.