International Financial Integration and Economic Growth in India: An Empirical Investigation

Abstract

This study endeavors to estimate relationship between international financial integration and economic growth in India during 1981-2011. Apart from direct impact of international financial integration on growth, indirect impact (via financial development) has also been studied empirically. Models of co-integration and Vector Error Correction Model (VECM) have been applied to examine the relationships. The study observes that international financial integration affects the growth of the economy positively; and change in economic growth due to it through financial development is approximately 8.63 percent. The study also suggests that the structural reforms that took place in India in early nineties did not affect the existing relationship of global financial integration and economic growth significantly.