Does financial outreach engender economic growth? Evidence from Indian states

Saibal Ghosh (Reserve Bank of India, Mumbai, India)

Journal of Indian Business Research

ISSN: 1755-4195

Publication date: 7 June 2011

Abstract

Purpose

Employing data on 14 major Indian states during 1973‐2004, this paper aims to investigate the hypothesis that economic growth is affected by financial outreach.

Design/methodology/approach

The paper employs univariate tests as well as advanced panel regression techniques to examine whether financial outreach matters for state‐level economic growth.

Findings

The analysis suggests that improvements in financial outreach led to a perceptible rise in per capita growth. In terms of magnitudes, a rise in demographic outreach by 10 percent raises state per capita growth by 0.3 percent; in case of geographic outreach, the increase is lower. Finally, the analysis supports the hypotheses that states with higher manufacturing share tend to grow faster and the quality of state‐level institutions and infrastructure exert a significant bearing on growth.

Research limitations/implications

Although the definitions of financial outreach are based on international best practice, they focus only on banks and are driven by the availability of data on relevant variables.

Practical implications

The article belongs to the broad strand of literature which examines the finance‐growth nexus.

Social implications

Financial outreach is presently an avowed objective of policymakers, both in India and elsewhere. The article examines which sets of economic/policy variables impact financial outreach. The analysis can provide policymakers with feedback as regards the feasibility of the strategies pursued to improve financial outreach and thereby, how best to redesign and fine‐tune them.

Originality/value

To the author's knowledge, this is presumably the first study in India to examine the financial outreach‐growth nexus in a systematic manner at the sub‐national level.

Keywords

Citation

Ghosh, S. (2011), "Does financial outreach engender economic growth? Evidence from Indian states", Journal of Indian Business Research, Vol. 3 No. 2, pp. 74-99. https://doi.org/10.1108/17554191111132206

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

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