The Finance-Growth-Crisis Nexus in India and Selected Asian Countries: Causality Analysis Based on Summary Indicator

In this paper, we first examine India's finance-growth-crisis nexus over the period of 1982Q1-2007Q4, taking the elements of financial crisis and financial repression into estimation. For this end, we create the original summary indicators of financial development, financial crisis and financial repression, respectively, and conduct Granger causality analysis employing those methods of unrestricted VAR, VECM and ARDL. Our main findings are: (1) India's finance-growth causality is bidirectional, more inclining toward the causation of growth-finance; (2) financial repression is crucial for both economic growth and financial development irrespective of time spans; and (3) economic growth, financial development and financial repression significantly influence financial crisis. Subsequently, our "Indian approach" is extended to four Asian countries of Indonesia, Korea, Malaysia and Thailand, all of which were severely hit by the Asian financial crisis over the period of 1997-1998. For each country, we obtain significant estimates and confirm that while the directions of finance-growth nexus are country-specific, financial development crucially causes financial crisis (except Korea where growth causes crisis)