Finance and Growth: An Empirical Assessment of the Indian Economy

This study is an attempt towards an integration of financial development and its effect on the real sector via the transmission mechanism with special reference to developing and emerging market economies. It finds two cointegrating relations between the financial development, output growth and allocation of credit which makes sense from the standpoint of economic theory. The paper also addresses the issue of causality between finance and growth for the aggregate and broad sectors of the economy. The relations, however, are not similar across the broad sectors of the economy and thus have separate policy implications for different sectors.financial institutions, financial development, transmission mechanism, credit, cointegration