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• Bhattacharya, Mousumi
• Bhattacharyya, Jita

This paper aims to investigate the possible co-integration and the direction of causality between financial development, foreign investment inflows and economic growth in India. In a VAR framework, after employing unit root tests to see if the variables under consideration are stationary and LR test statistic to identify whether any restrictions are there in the co-integrating vector or on the adjustment coefficients, Granger causality have been conducted in a VECM framework. Apart from econometric analysis regression analysis is also conducted. The Cointegration test reveals that the variables under study are 1(1) processes implying a long run relationship exists between them. Both supply-leading and demand-following hypotheses are observed in case of Indian economy. Moreover FII(foreign investment inflows) -led growth hypothesis and GDP-driven FII hypothesis is also seen. The adjusted R- value of 0.897 measures the goodness of fit of the regression model.

• Economics and Business
• Computer and information sciences

• Economic development
• Statistics

granger causality, financial development, cointegration, VECM. JEL:- F43 - economic growth of open economies

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