Banking outreach, infrastructure development and regional growth. Empirical evidence from Indian states

Published date08 May 2017
Date08 May 2017
DOIhttps://doi.org/10.1108/WJEMSD-11-2016-0054
Pages114-127
AuthorHarishankar Vidyarthi
Subject MatterStrategy,Business ethics,Sustainability
Banking outreach, infrastructure
development and regional growth
Empirical evidence from Indian states
Harishankar Vidyarthi
Department of Finance and Accounts,
International Management Institute, New Delhi, India
Abstract
Purpose The purpose of this paper is to examine the dynamics between banking penetration,
infrastructure development and regional growth within a multivariate framework in 23 Indian states over the
period 2000-2012.
Design/methodology/approach The study employs the multivariate panel data framework to analyze
the dynamics between banking penetration, infrastructure development and regional growth within the
vector error correction model (VECM) framework.
Findings The findings confirm the long-run equilibrium relationship between banking penetration,
infrastructure and income for the panel. Long-run income elasticity of infrastructure, estimated using Panel
dynamic ordinary least square, is positive, statistically significant and has a value of 0.1531. Further, results
show bidirectional causality between income and aggregate infrastructure and unidirectional causality
running from banking penetration to income and aggregate infrastructure in the long run. However, there is
unidirectional causality running from income to banking penetration and aggregate infrastructure and from
banking penetration to aggregate infrastructure in the short run.
Research limitations/implications The study mainly concentrates on the 2000-2012 period and
includes transportation (roadways and railways), energy (including electricity) and telecommunication as
indicators for infrastructure, as the data for these sectors are easily available at the state level. Second, this
study employs the panel data technique as it has a shorter data count.
Practical implications In order to minimize the existing regional disparity in a developing India, national
infrastructure policies should be aimed toward improving the overall access to as well as the quality of
infrastructure (existing as well as newly planned). Further, widening the banking outreach at the bottom level
may further help the economy as well as the infrastructure sector in mobilizing long-term finances for
productive investments, in order to have a balanced, more inclusive and faster growth in the long run.
Originality/value The study employs panel unit root, cointegration and Granger causality tests within the
panel VECM framework to explore the dynamics among the system variables. Further, the study creates a
composite index of infrastructure with principle component analysis.
Keywords India, Infrastructure, Banking outreach, Panel vector error correction method,
Regional growth
Paper type Research paper
1. Introduction
Limited and below-par domestic infrastructure in developing countries is often cited as an
important impediment for stimulating productivity and growth, be it the economic, industrial
or service sector. Therefore, there is a great amount of economic literature, post Aschauer
(1989), exploring the contribution of infrastructure to growth. There is extensive literature
(e.g. Aschauer, 1989; Munnell, 1990; Munnell and Cook, 1990; Easterly and Rebelo, 1993;
World Bank, 1994; Röller and Waverman, 2001; Mitra et al., 2002, 2012, 2016; Calderon and
Servén, 2003; Calderon et al., 2004; Canning and Pedroni, 2004; Hulten et al., 2006; Lall, 2007;
Sahoo and Dash, 2009, 2012; Dash and Sahoo, 2010; Sharma and Sehgal, 2010; Pradhan and
Bagchi, 2013; Vidyarthi and Sharma, 2014; Calderon et al., 2015; Mohmand et al., 2016)
supporting the fact that improvement in infrastructure fosters firm efficiency and
competitiveness in national and international markets, improves regional connectivity,
lowers trade cost, improves market access, sustains development and accelerates social
development.However, studies by Evansand Karras (1994) and Holtz-Eakin(1994) challenged
World Journal of
Entrepreneurship, Management
and Sustainable Development
Vol. 13 No. 2, 2017
pp. 114-127
© Emerald PublishingLimited
2042-5961
DOI 10.1108/WJEMSD-11-2016-0054
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2042-5961.htm
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WJEMSD
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