Educational Investment and Economic Growth in India: An Econometric Approach

Abstract

Education plays a very significant role while considering it as one of the causative factor affecting to Human Development. Literacy remained core pillar in the construction of Human Development Index methodology. Education has been seen as a key to reduction of poverty and promoting equity, fairness and social justice. It helps to produce the essential supply of human capital. Therefore, investment in education has been considered to be growth oriented. But, there is an ongoing debate regarding the effects of educational investment on economic growth across the world. The primary objective of this paper is to carry out an empirical investigation on the relationship between investment in education and economic growth. It explores short run and long run dynamic relationship between educational investment measured as educational expenditure and economic growth measured in terms of Gross Domestic Product (GDP) in Indian context using annual data series from 1951 to 2015. Time series analysis has been carried out using Johansen test, Granger causality test, impulse responsive function, variance decomposition and different empirical tools based on vector autoregressive model. The results are in confirmation with earlier studies indicating long run stable equilibrium relation between education and GDP.

Keywords: Educational expenditure; Economic Growth; Granger Causality; Impulse response function; Variance decomposition

JEL Classification: C22, I21