Domestic De Debt bt and Economic Gr Growth wth in India

The study investigates the relationship between domestic debt and economic growth. The traditional view considers that in the long run, domestic debt has a negative impact on economic growth while the Ricardian equivalence hypothesis implies the neutrality of domestic debt to growth. In India, domestic debt has been incurred mainly on the coinsideration that it shall be used for investment purposes. The issue is empirically examined using the cointegration test and the Granger causality test for India over the period 1959-95. Cointegration and the Granger causality tests support the Ricardian equivalence hypothesis between domestic debt and growth.