1Corresponding author and Research Scholar, Department of Economics, Central University of Kashmir, Ganderbal, Email: aadilnajar2016@gmail.com
2Associate Professor, Department of Economics, Central University of Kashmir, Ganderbal, Email: masroor@cukashmir.ac.in
3Assistant Professor, Department of Data Science, Christ University, Bengaluru, Email: asiftariq@christuniversity.in, respectively.
Online Published on 19 February, 2025.
This research explores the connection between financial development and economic growth in India from 1990 to 2018. To examine both short-term and long-term dynamics, the study utilises the ARDL and Toda-Yamamoto Causality methods. Additionally, the authors apply Principal Component Analysis (PCA) to construct a financial development index. The empirical results derived from the PCA-based index affirm the continuous advancement of financial development throughout the examined period. The results reveal both short-term and long-term association with economic growth. The study specifically reveals a bidirectional causal relationship between financial development and economic growth. These results carry important implications for policymakers, indicating that improving the efficiency of the financial sector—through the development of stock markets and banking systems can stimulate economic growth. Consequently, policymakers are encouraged to leverage these findings in their decision-making processes.
Financial development, Economic growth, ARDL, PCA
