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Nexus between Government Expenditure on Education and Economic Growth: Empirical Evidences from India

Keywords: Expenditure on education , Economic growth , Indian economy , Granger Causality , Non-linearity

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Education being an important component of human capital has always attracted the attention from economists, researchers and policy makers. Governments are trying to improve the human capital by pumping more investments in education. Education increases an individual’s earning potential, but also produces a ‘ripple effect” throughout the economy by way of series of positive externalities (Michaelowa, 2000). But the issue that whether improved level of education resulting from more education spending can promote economic growth has been a topic of debate. 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 investigate the relationship between education spending and economic growth in India for the period 1951-2009. In lines with findings of Kyrtsou and Labys (2006) Parmani (2009) and Pradhan (2009), the results of the present 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 with time-lag. The results are particularly useful in theoretical and empirical research by economists, regulators and policy makers.


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