Examining a Co-Integration and Causality between Education and Economic Growth in India

Abstract

The study examines the empirical relationship between education expenditure, higher education and economic growth in the context of India using time series econometric analysis for the time period 1971-2015 based on Vector Autoregression (VAR) model and Johansen’s Cointegration procedure. The time series data were verified for the stationary properties by using Augmented Dickey Fuller and Phillips-Perron test techniques which showed the variables to be integrated of order one I(1). The Johansen co integration of trace and maximum Eigen value tests indicated the presence of one co-integrating relationship among the variables, that is, the existence of long run relationship among the variables under investigation. The Granger causality test results indicated a unidirectional causality that runs from government expenditure on education to economic growth and also the existence of unidirectional causality between higher education and economic growth that run from economic growth to higher education. The reverse causality did not hold in either cases. The error-correction mechanism gives evidence for the short-run dynamics. Impulse Response Function showed a sharp drop initially of GDP and then positive response of GDP to shock in education expenditure and higher education that appeal for productive investment in research and development and training with proper facilities and establishment of more educational institutions, particularly higher education institutions that will lead to higher economic growth of India.