Economic growth impact of Indian stock market: an econometric investigation

This study investigates the Impact of stock market on economic growth of India. ADF Unit Root test result shows all variables to be integrated of order one, that is they became stationary after taking first difference. Johansen Cointegration test shows the presence of long run relationship among the variables. Long run estimation result showed a positive and significant relationship between investment, labour and education with GDP, while stock market and GDP were found to be negatively related. Vector Error Correction Model (VECM) short run dynamics showed stock market to have a short run positive impact on economic growth of India. Impulse Response Function (IRF) shows the response of GDP to a shock in stock market and interest rate to be negative, while the response to shocks in labour, investment and education was positive. Policy recommendations includes putting in place measures aimed at reducing shocks in the stock market and making it have a positive impact on the economic growth of India.