Journal of Law, Policy and Globalization www.iiste.org ISSN 2224-3240 (Paper) ISSN 2224-3259 (Online) Vol 2, 2012 18 Globalization and Economic Growth in India: A Granger Causality Approach Sarbapriya Ray Dept. of Commerce, Shyampur Siddheswari Mahavidyalaya, University of Calcutta, West Bengal, India. E-mail:sarbapriyaray@yahoo.com. Abstract: Today, the term 'globalization’ has become a ‘buzzword’ in any economy all over the world. The growing integration of economies and societies all over the universe has been one of the most burning topics in international economics over the past few years. Globalization has many dimensions and has a variety of social, political and economic implications.This paper attempts to enquire into the fact econometrically whether globalization is a cause of India’s economic growth in the long run. More precisely, the article tries to find the causal relationship between globalization and economic growth in India. The regression results show that private investment, openness and human resource development have significant positive impact on economic growth via GDP growth. Financial integration variable (capital inflow+capital outflow) has negative impact, although not significant, on economic growth and public investment is also having insignificant positive impact on economic growth. Johansen’s cointegration procedure showed that all the above-mentioned variables are cointegrated implying these macro economic variables have long-run equilibrium relationship with economic growth via GDPgrowth. Error-correction model results also supported the cointegration results. We observe that the direction of causality between globalization and economic growth in India is generally bidirectional (causality runs in both directions) excepting a few where it is unidirectional. Keywords: Globalization, economic growth,causality,opneness,financial integration,GDP. 1.Introduction: Today, the term 'globalization’ has become a ‘buzzword’ in any economy all over the world. The growing integration of economies and societies all over the universe has been one of the most burning topics in international economics over the past few years. Globalization has many dimensions and has a variety of social, political and economic implications. This term introduced in early 1980, which never precisely defined, is a frequently used word in the political economy. Though there is no appropriate definition of globalization, the term globalization refers to the integration of economies of the world through unrestrained trade and financial flows as well as through mutual exchange of technology and knowledge. Preferably, it also contains free inter-country movement of labour. The process of globalization not only includes opening up of world trade but also development of advanced means of communication, internationalization of financial markets, growing importance of MNC’s, population migrations and more generally increased mobility of persons, goods, capital, data and ideas but also infections, diseases and pollution. Therefore, it simply means growing integration of the national economies, openness to trade, financial flows, foreign direct investment and the increasing interaction of people in all facets of their lives. Globalization also implies internationalization of production, distribution and marketing of goods and services. International integration implies the adoption of common policies by the individual countries. India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organizations. The new policy regime radically pushed forward in favour of a more open and market oriented economy. As a participant in the globalization wave, India went through several structural and policy changes only in early 1990s, even if the awareness of need for opening up country’s borders was started in late 1980s. The first step towards globalization was taken with the announcement of the devaluation of Indian currency by 18-19 percent against major currencies in the international foreign