Law, Institutions and Finance: Time Series Evidence from India

Francis Xavier Rathinam
2007 Social Science Research Network  
This paper revisits the "financial development -economic growth puzzle" from the perspective of the determinants of financial sector growth such as legal and institutional developments and financial regulation. Within a multivariate VAR framework, Granger Causality test and Vector Error Correction Model are employed to investigate the long run causal relationships between the determinants and the financial sector in India. Our results show that legal and institutional developments and financial
more » ... ments and financial regulation cause financial sector growth with a considerable feedback and further financial sector weakly causes economic growth. Thus this paper completes the causal chain of links where legal and institutional development and regulatory measures cause economic growth by enhancing the financial sector.
doi:10.2139/ssrn.998091 fatcat:v4bcvg7btvburiuwi6ymbewdcy