Empirical relationship between human capital and economic growth in India: Is it consistent across different measures of human capital?
Surendra Kumar Naik, Indrajit BairagyaPurpose
Although a plethora of literature studies the relationship between human capital (HC) and economic growth in the Indian context, the empirical relationship between HC and economic growth is observed as ambiguous in the existing studies. The present study attempts to combine both input and output measures of HC across all levels of education from the Indian context during 1982–2017. Subsequently, it also examines the consistency of the results across all the educational measures of the HC variable separately and compares them with various measures of HC.
Design/methodology/approach
The theoretical framework of the study is anchored in the Lucas growth model, which is empirically analysed using Johansen cointegration to examine the long-run relationship. Based on the vector error correction model, we investigate the short-run association between HC and economic growth.
Findings
From the analysis, we found that HC variables such as Gross Enrolment Ratios (GER), Average Years of Schooling (AYS) and public education expenditure influence economic growth in the country. Interestingly, an analysis of public spending across different levels of education indicates that the tertiary level influences economic growth in a positive and significant manner in both periods. However, secondary public education expenditure results found it positively influences economic growth in both periods. Therefore, a specific focus on those levels of education is desirable to give further impetus to economic growth for a developing country like India.
Research limitations/implications
The accuracy and comparability of time series analysis of HC and economic growth in India are impacted by several data restrictions. Long-term series are disrupted by frequent changes in base years, definitions and methodology among national data sources. Analysis may further be affected by inconsistent measures of HC, such as literacy, education and skill data, which frequently depend on interpretation or are unavailable for successive years even after more than seven decades of independence. To strengthen the empirical relationship between HC and economic growth, India must create a trustworthy dataset at both the national and sub-national levels.
Originality/value
Existing studies have focused on measuring the empirical relationship between HC formation and economic growth, using educational attainment or average years of schooling as a proxy for HC. However, studies have not examined whether the relationship between economic growth and HC is consistent with different measures of HC. Moreover, the literature has not compared the income- or expenditure-based measures of HC, while identifying the determinants of economic growth. The present study systematically analyses various HC indicators in determining which factors contribute most significantly to economic growth.