Telephone penetrations and economic growth: evidence from India.

The study probes cointegration and Granger causality between telephone connections and economic activity for India using annual data for the time span 1980-81 to 2006-07. Empirical results fail to establish any cointegrating relationship among the variables. The heterogeneity of penetration within different states of the country and within the time period of analysis may explain the lack of a long term relationship among the variables. The study, however, establishes short-run unidirectional Granger causality running from telephone connections to economic growth signifying the strategic importance of telecommunications for the Indian growth story. It re-enforces the urgency of initiatives aimed at providing universal telephone and data connectivity to the entire population. To study the behavior of variables out of the sample period, generalized impulse response paths due to the various shocks to the system are studied. The findings are that GDP responds positively to a one-time shock in telephone connections but returns to its initial levels after 4 years. The study discusses the possible reasons behind the empirical findings and concludes with a discussion of policy prescriptions to augment telephone connectivity in India. [ABSTRACT FROM AUTHOR]