Impact of Formal Financial Services on Per Capita Income in India: Evidence from Regression and Causality Approach
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Author: Susanta Kumar Sethy and Phanindra Goyari
Author Address: Assistant Professor, Department of Economics, Rajendra University, Balangir-767 002 (Odisha) and Professor, School of Economics, University of Hyderabad, Hyderabad-500 046 (Telangana)
Keywords: Economic growth, financial inclusion, financial services, per capita income.
JEL Codes: F43, O43, G21, E01.
Abstract
The main purpose of this paper was to examine
the impact of formal financial services on per capita income in India from 2004
to 2018. The study used a regression approach to find the impact of formal
financial services on per capita income. The Toda- Yamamoto Granger causality
test was used to find the direction of causality between formal financial
services and per capita income. The empirical findings of this study confirmed
that formal financial services had a positive and statistically significant impact
on per capita income. These results suggested that India can increase per
capita income by improving the coverage of formal financial services. Further,
the causality test confirmed that a unidirectional causal relationship was
found running from formal financial services (such as the number of ATMs per
1000 km , deposit accounts with commercial banks, and outstanding deposits 2
with commercial banks) to per capita GDP. Formal financial services
are one of the main drivers of per capita income. Policymakers must emphasize
financial sector reforms and create awareness about financial services and
financial literacy to increase per capita income in the long run, especially in
developing countries.
Keywords
JEL Codes
Description
Indian Journal of Economics and Development
Volume 18 No. 3, 2022, 597-605
DOI: https://doi.org/10.35716/IJED/20256
NAAS Score: 5.15 (2022)
Indexed in Clarivate Analytics (ESCI) of WoS
Indexed in Scopus (SJR: 0.18)
UGC Approved (UGC-Care List Group II)