Education Expenditure and Economic Growth:A Causal Analysis for India

Education is one of the important determinant factors of economic growth. No country can achieve sustainable economic growth without substantial investment in education. It improves the quality of lives and leads to broad social benefits to individuals and society. This paper focuses on the long-run relationship and causality between government expenditure in education and economic growth in Indian economy. Time series data are used for the period 1951 to 2013 obtained from authorized sources. The improved econometric methodologies; unit root and co integration test, Granger Causality test, and Error Correction Modelling approach are applied. The stationarity of the data have been examined by using Augmented Dickey-Fuller (ADF) test. Results from Augmented Dickey-Fuller test show that both government expenditure in education and economic growth are non stationary at the level but found stationary at the first differences, indicating that they are integrated of order one. Johansen maximum likelihood method is applied for testing long run relationship of the data. Both Eigen value and trace tests leads to the same results; there is one co integrating relation at the 0.05 level of significance between government expenditure in education and economic growth. The VECM Granger Causality test reveals that there is unidirectional causality running from government expenditure in education to economic growth. It means government expenditure in education lead to economic growth overall period of time. This study has proves that human capital such as education variable plays an important role in influencing economic growth in India.