Globalization and Economic Growth in India: A Granger Causality Approach

Abstract

Today, the term 'globalization’ has become a buzzword in any economy all over the world. The growing integration of economies and societies all over the universe has been one of the most burning topics in international economics over the past few years. Globalization has many dimensions and has a variety of social, political and economic implications.This paper attempts to enquire into the fact econometrically whether globalization is a cause of India‘s economic growth in the long run. More precisely, the article tries to find the causal relationship between globalization and economic growth in India. The regression results show that private investment, openness and human resource development have significant positive impact on economic growth via GDP growth. Financial integration variable (capital inflow+capital outflow) has negative impact, although not significant, on economic growth and public investment is also having insignificant positive impact on economic growth. Johansen’s cointegration procedure showed that all the above-mentioned variables are cointegrated implying these macro economic variables have long-run equilibrium relationship with economic growth via GDPgrowth. Error-correction model results also supported the cointegration results. We observe that the direction of causality between globalization and economic growth in India is generally bidirectional (causality runs in both directions) excepting a few where it is unidirectional.

Keywords: Globalization, economic growth, causality, opneness, financial integration, GDP.