Relation of Economic Growth and Macro Economic Variables

Abstract

Indian economy is experiencing a downturn in its business cycle, the relation between growth, inflation, exchange rate, trade openness, investment, export and import is examined, to understand how these variables influence the GDP of an economy. In this context this article is an attempt to identify the factors which helps to fasten the process of economic growth for India when it is passing through a phase of recession. Cointegration among variables in both short and long term is observed. Granger causality results indicate that all the variables cause/influence each other. The regression of the macro economic variables on GDP indicates that import, trade openness is significant and negatively related; whereas investment is positively related. Results of the study indicate investment in the economy will contribute to growth as it will reduce dependence on import.