Examining the Linkages Between Financial Development and Energy Consumption in India

This paper examines the long-run equilibrium and the existence of the causal relationship between financial development, energy consumption, economic growth and FDI in India for the period 1978-2014. The Johansen-Juselius maximum likelihood procedure in the multivariate framework and Granger causality in the vector error correction framework (VECM) is employed to examine the co-integration and causal association between the considered variables. The results of Johansen-Juselius co-integration test shows that there is long-run equilibrium relationship among variables. We also find that there is no long-run causality between the variables, but there exists bi-directional short-run causality between financial development and energy consumption in India. Based on these results, suitable growth policies are also discussed for India.