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Does Human Capital Matter for the Economic Growth of Indian States? A Dynamic Panel Data Analysis – isec

Does Human Capital Matter for the Economic Growth of Indian States? A Dynamic Panel Data Analysis

Does Human Capital Matter for the Economic Growth of Indian States? A Dynamic Panel Data Analysis

 

Surendra Kumar Naik and Indrajit Bairagya

 

Abstract

Although there are several studies examining the role of human capital in economic growth, studies at the sub-national level examining this relationship are found scanty, especially from the Indian context. Filling this research gap, the present study analyses the relationship using various measures of human capital for 15 major states in India from 1994 to 2018. Based on the static and dynamic panel data analysis using the Generalised Method of Moments, the critical role of Average Years of Schooling, Gross Enrolment Ratios, and financing for different educational levels in augmenting the economic growth of the Indian states is established through this study. Besides examining the relationship between economic growth and current human capital in both static and dynamic panel models, we have examined the relationship between economic growth and past human capital factors with their five-year lag values. Results reveal that the enrolment ratio of higher education influences economic growth more than other levels of education in both models. Moreover, although current public spending at the higher educational level does not statistically and significantly affect economic growth, past public spending at the higher educational level has a significant impact on economic growth, perhaps because it takes a few years for individuals after completion of education to join the labour market, which makes a significant contribution to economic growth. Therefore, public spending policies should be thoughtfully devised to meet the twin objectives of egalitarian distribution of education and augmentation of economic growth.

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