Heterogeneous Causality Between Telecommunications and Economic Growth: An Application of Hurlin–Venet Process to the Indian States

Abstract

Keeping in mind the importance of telecommunications sector for India especially post the reform of 1991, the study seeks to study the causal relationship between telecommunication and economic growth for selected panel of 17 Indian states by implicitly taking into account panel heterogeneity. Using Hurlin–Venet causal mechanism, the study investigates homogeneous causality (HC) as against heterogeneous causality (HEC). Homogeneous non-causality and HC hypothesis both of which assume homogeneity are rejected in both the directions thereby implying that Indian panel is made up of heterogeneous cross sections. After this HEC tests are conducted namely heterogeneous non-causality (HENC) and HEC for each and every cross section. The results from HENC and HEC test show that six states show up unidirectional causality from economic growth to telecommunication, four states show unidirectional causality from telecommunications to economic growth, four states show up bidirectional relationship and three states show up no causality. The results are robust to different lags for both our dependent as well as independent variables. This implies that state level differences are very much relevant for India and thus policies suitable for each state would be guided majorly by direction of relationship that is true in a particular state economy. JEL Classifications: C23, L96, O40