Assessing Causal relationship between Education and Economic Growth in India

Abstract

The paper attempts to evaluate empirically the relationship between education expenditure and economic growth in India using annual data over the period 1961-62 to 2009-10. The paper is based on the following hypotheses for testing the causality and co-integration between economic growth via GDP growth and educational expenditure in India as to whether there is bi-directional causality between GDP growth and education, or whether there is unidirectional causality between the two variables or whether there is no causality between GDP and education in India or whether there exists a long run relationship between GDP and education in India. Time-series econometric techniques (Granger causality and Johansen cointegration test) are applied to test the hypothesis.The cointegration test confirmed that economic growth and education expenditure are co integrated, indicating the existence of long run equilibrium relationship between the two variables-education and economic growth as confirmed by the Johansen cointegration test results. The Granger causality test finally confirmed that there does not exist any short-run causality between economic growth and education and vice-versa. The error correction estimates indicates appropriate speed of convergence towards equilibrium position in case of any disequilibrium situation.