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How Does Human Capital Affect Economic Growth in India? An Empirical Analysis

Parika, Ayushi and Singh, Bhanu Pratap (2020): How Does Human Capital Affect Economic Growth in India? An Empirical Analysis.

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Abstract

The study attempts to examine the relationship between human capital and economic growth in India. The study utilizes annual time series data for the period 1980 to 2017. Real Gross Domestic Product is used as a proxy for economic prosperity and the Human Capital Index is taken as a proxy for the level of human capital. Conventional sources of growth are controlled by physical capital, trade openness and inflation. Johansen Cointegration and Fully Modified Ordinary Least Square (FMOLS) techniques are applied to look into a long-run equilibrium relationship. Toda and Yamamoto (1995) Granger's causality test is used as a short-run diagnostic test for the long-run equilibrium relationship. The major findings of the study suggest human and physical capital is the major determinant of economic development in the long-run, whereas in the short-run the level of economic prosperity determines the level of human and physical capital, the volume of trade and fiscal space of the government.

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