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Banking, insurance and economic growth in India: An empirical analysis of relationship from regulated to liberalized era

Shrutikeerti Kaushal (Department of Management Studies, National Institute of Technology, Durgapur, India)
Amlan Ghosh (Department of Management Studies, National Institute of Technology, Durgapur, India)

Journal of Financial Economic Policy

ISSN: 1757-6385

Article publication date: 3 April 2018

652

Abstract

Purpose

Understanding the role of financial intermediaries towards financial development and thereby the growth of an economy, this study aims to examine the long-run relationship between the development of banking and insurance sector and economic growth in India by covering different regimes including the regulated and the liberalized period.

Design/methodology/approach

For examining the long-run relationship between these sectors, the study uses VAR-VECM technique. Further, Granger causality test is used to check if there is the presence of any causal link among these sectors.

Findings

The findings clearly indicate long-run relationship between economic growth and the development of banking and insurance sector, while the causality results show demand following relationship in the complete period where there is bi-directional causality in the post-liberalized period from insurance to economic growth.

Research limitations/implications

As banking development is not found to support economic growth, this raises serious concerns towards the complex role of banks as against theory and demands further analysis to understand their role in an economy.

Practical implications

As causality pattern has changed from demand following to bi-directional causality, it is vital to understand the importance of liberalization towards the economic growth of the country as well as the contribution of insurance sector towards economic growth in the liberalized environment.

Originality/value

This is the first effort to empirically explore the relationship between economic growth and the development of banking and insurance sector in India by covering the complete period (regulated and liberalized).

Keywords

Citation

Kaushal, S. and Ghosh, A. (2018), "Banking, insurance and economic growth in India: An empirical analysis of relationship from regulated to liberalized era", Journal of Financial Economic Policy, Vol. 10 No. 1, pp. 17-37. https://doi.org/10.1108/JFEP-03-2017-0022

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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