Does Government Expenditure on Education Promote Economic Growth? An Econometric Analysis

Abhijeet, Chandra (2010): Does Government Expenditure on Education Promote Economic Growth? An Econometric Analysis. Forthcoming in: Journal of Practicing Managers (2010)

Abstract

Education being an important component of human capital has always attracted the interests of economists, researchers and policy makers. Governments across the globe in general and in India in particular are trying to improve the human capital by pumping more investments in education. But the issue that whether improved level of education resulting from more education spending can promote economic growth is still controversial. Some economists and researchers have supported the bi-directional relation between these two variables, while it has also been suggested that it is the economic growth that stimulates governments spend more on education, not the other way. Considering this research issue, the present paper uses linear and non-linear Granger Causality methods to determine the causal relationship between education spending and economic growth in India for the period 1951-2009. The findings of this paper indicate that economic growth affects the level of government spending on education irrespective of any lag effects, but investments in education also tend to influence economic growth after some time-lag. The results are particularly useful in theoretical and empirical research by economists, regulators and policy makers.

• Item Type: MPRA Paper
• Language: English
• Keywords: Education expenditure, Economic growth, Indian economy, Granger Causality, Non-linearity.
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I21 - Analysis of Education; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; H - Public Economics > H5 - National Government Expenditures and Related Policies > H52 - Government Expenditures and Education

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