A Nexus Between Government Spending, Credit To Private Sector And Economic Growth Of India: A Time-series Analysis


Krunal Patel


The role of financial development for the growth of an economy is vital to analyze. There is a lengthy debate going on in identifying the nexus between financial development and economic growth. The study focuses on examining the relationship between Government expenditure, Credit to Private Sectors and economic growth and also to identify causality between them. The study considers two major indicators of financial development namely, Domestic credit to private sector, Government spending. This Paper employs Unit-root test, Co-integration and Granger causality test to identify the relationship between economic growth and financial development of India. The annual time-series data ranging from 1964-2020 considered for study. The result of co-integration test suggests that there is long-run relationship between GDP and, domestic credit to private sector, government spending. Granger Causality result was suggesting unidirectional causality between, Domestic credit to private sector to GDP. It also found unidirectional relationship from Economic growth to government spending.


Author Biography

Krunal Patel, Assistant Professor, Shrimad Rajchandra Institute of Management and Computer Application, Uka Tarsadia University, Bardoli-Mahuva Road, Bardoli – 394350, Gujarat

How to Cite
Patel, K. . (2022). A Nexus Between Government Spending, Credit To Private Sector And Economic Growth Of India: A Time-series Analysis. NLDIMSR Innovision Journal of Management Research, 6(1), 1–10. https://doi.org/10.31794/NLDIMSR.6.1.2022.1-10


  1. Adusei, M. (2012). Financial Development and Economic Growth: Is Schumpeter Right? British Journal of Economics, Management and Trade, 2(3), 265–278. https://doi.org/10.9734/BJEMT/2012/1865
  2. Acharya, D., Amanulla, S. and Joy, S. (2009). Financial development and Economic Growth in Indian States: An Examination. International Research Journal of Finance and Economics, 24, 117–130.
  3. Chakraborty, I. (2010). Financial Development and Economic growth in India: An analysis of the post-reform period. South Asia Economic Journal II, 2, 287–308. https://doi.org/10.1177/139156141001100206
  4. Enders, W. (2004). Applied Econometrics Time Series, John Willey and Sons, New York.
  5. Global Financial Development Report. (2019/20). Bank regulation and supervision a Decade after the Global Financial Crisis. The World Bank, XV.
  6. Kiran, B., Yavuz, C.N., and Guris, B. (2009). Financial Development and Economic Growth: A Panel Data analysis of emerging countries. The International Journal of Business and Finance Research, (30), 87–94.
  7. Liang, Q. and Teng, J.-Z. (2006). Financial Development and Economic Growth: Evidence from China. China Economic Review, 17, 395–441. https://doi.org/10.1016/j.chieco.2005.09.003
  8. Lucas, R.F. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics, 22(1), 3–42. https://doi.org/10.1016/0304-3932(88)90168-7
  9. McKinnon, R.I. (1973). Money and Capital in Economic Development. Washington: The Brooking Institution.
  10. Nayak, J.M. (2020). Does financial development still a spur to economic growth in India? Journal of Public Affairs, e2328.
  11. Ray, S. (2013). Does Financial development cause economic growth in India? International Journal of Economic Practices and Theories, 3(3), 140–151.
  12. Robinson, J. (1952). The Rate of Interest and Other Essays. The Generalization of General Theory, London: MacMillan. pp. 67–142.
  13. Schumpeter, J.A. (1911). The Theory of Economic Development. Cambridge, MA: Harvard University Press.
  14. Stern, N. (1989). The economics of development: A survey. Economic Journal, 99, pp.597–785. https://doi.
  15. org/10.2307/2233764
  16. Zang, H., and Kim, Y.C. (2007). Does financial development precede growth? Robinson and Lucas might be right. Applied Economics Letters, 14, 15–19. https://doi.org/10.1080/13504850500425469