The Role of Globalization and Institutional Quality on Finance- Growth Nexus:Empirical Evidences from India

Abstract

The present study explores the impact of globalization and institutional quality on financegrowth nexus within the multivariate framework using time series data over the period 1982-2014. The stationary properties of the variables are checked by employing Saikkonen and Lütkepohl (2002) unit root test. The long run relationship is investigated by applying the ARDL bounds testing approach to co-integration and error correction method (ECM) is used to examine the short run dynamics among the variables. The empirical results of long run estimates of ARDL suggest that financial development and Globalization contributes to economic growth. These findings are supported by short run estimates. It is also found that institutional Quality does affect economic growth positively; this is in support of sustainable growth. The findings of VECM based causality suggest that there is unidirectional causality running from financial development and globalization to economic growth. It is also found that the unidirectional causality is running from coefficient of institutional quality to economic growth .The results of variance decomposition suggest that the broad money supply plays the most important role to define economic growth in India.