Title: The impact of stock market development and inflation on economic growth in India: evidence using the ARDL bounds testing and VECM approaches

Authors: Rudra P. Pradhan; Flávio De São Pedro Filho; John H. Hall

Addresses: Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, WB 721302, India ' Universidade Federal de Rondônia, Campus José Ribeiro Filho, BR 364, KM 9, 5, Via de Acesso para o Acre, Porto Velho City, Estado de Rondônia, CEP 76800-000, Brazil ' Department of Financial Management, University of Pretoria, Pretoria, Private Bag X20 Hatfield, Pretoria 0028, Republic of South Africa

Abstract: This paper investigates the impact of stock market development, money supply and inflation on economic growth in India during the post-globalisation era of the 1990s, especially during the period from 1994 to 2012. Using autoregressive distributive lag (ARDL) bounds testing approach, the study finds stock market development, money supply, inflation and economic growth are cointegrated, suggesting the presence of a long-run equilibrium relationship between them. The vector autoregressive error correction model (VECM) further confirms the existence of both bidirectional and unidirectional causality between economic growth, money supply, inflation and stock market development in India. The policy implication of this study is that inflation and money supply can be considered a policy variable to predict both economic growth and stock market development in the Indian economy during the post globalisation era.

Keywords: stock markets; money supply; economic growth; inflation; autoregressive distributive lag; ARDL; vector autoregressive error correction model; VECM; India; stock market development.

DOI: 10.1504/IJEBR.2014.064118

International Journal of Economics and Business Research, 2014 Vol.8 No.2, pp.143 - 160

Received: 01 Jun 2013
Accepted: 23 Jul 2013

Published online: 02 Aug 2014 *

Full-text access for editors Access for subscribers Purchase this article Comment on this article