Role of Knowledge in Supporting Growth across Indian States: A Co-Integration and Causality Approach

Arindam Banik, Rabia Khatun

International Management Institute B-10, Qutab Institutional Area.

DOI: 10.4236/me.2012.33045                

Abstract

This paper uses cointegration and vector error-correction models to analyse the causal relationship between education and development across select Indian states using annual data from 1980-81 to 2008-09. Expenditure on education per capita is used as the proxy for education, while State domestic product per capita is the proxy for development. The empirical results provide some evidence of bi-directional causality in Indian States such as Kerala, Karnataka, Andhra Pradesh, Maharashtra and Tamil Nadu. There is also evidence of causation running from per capita expenditure on education to per capita State domestic product in either the short or long run in states such as Bihar, Arunachal Pradesh, Uttar Pradesh, West Bengal, Punjab, Orissa, Madhya Pradesh, Gujarat, Rajasthan, Haryana and Punjab. Thus, there is some indication that the observed positive correlation across states between expenditure on education and growth reflects primarily the influence of government effective intervention in the education sector.

Keywords

Conintegration; Indian States; Education Expenditure; Growth

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	E. Denison, “Why Growth Rates Differ?” The Brookings Institution, Washington, DC, 1967.
[2]	J.-C. Berthelemy and A. Varoudakis, “Policies for Economic Take-Off,” Policy, Brief, Paris, 1996.
[3]	J. Benhabib and M. M. Spiegel, “The Role of Human Capital in Economic development: Evidence from Aggregate Cross-Country Data,” Journal of Monetary Economics, Vol. 34, No. 2, 1994, pp. 143-173. doi:10.1016/0304-3932(94)90047-7
[4]	N. Birdsall, G. Carol and R. H. Sabot, “Beyond Tradeoffs: Market Reforms and Equitable Growth in Latin America,” Inter-American Development Bank and Brookings Institution Press, Washington DC, 1998.
[5]	J. E. Stiglitz, “Development Thinking at the MillenniumKey Note Address. Annual World Conference on Development Economics,” World Bank, Washington DC, 2000.
[6]	R. E. Lucas, “On the Mechanics of Economic Development,” Journal of Monetary Economics, Vol. 22, No. 1, 1988, pp. 3-42. doi:10.1016/0304-3932(88)90168-7
[7]	J. E. Stiglitz, “Economic Organization, Information and Development,” In: C. Hollis and T. N. Srinivasan, Eds., Handbook of Development Economics, Elsevier Science Publishers, New York, 1988, pp. 93-160. doi:10.1016/S1573-4471(88)01008-3
[8]	L. Pritchett, “Where Has All the Education Gone?” The World Bank Economic Review, Vol. 15, No. 3, 2001, pp. 367-391. doi:10.1093/wber/15.3.367
[9]	B. Francis and S. Iyare, “Education and Development in the Caribbean: A Co-integration and Causality Approach”, Economics Bulletin, Vol. 15, No. 2, 2005, pp. 1-13.
[10]	J.-C. Berthelemy, A. Seck and A. Vourc’h, “Growth in Senegal: A Lost opportunity?” Long-Term Growth Series, Development Centre, OECD, Paris, 1996.
[11]	C. W. J. Granger, “Investigating Causal Relations by Econo- metric and Cross-Spectral Method,” Econometrica, Vol. 37, No. 3, 1969, pp. 424-438. doi:10.2307/1912791
[12]	C. W. J. Granger, “Some Recent Developments in a Concept of Causality,” Journal of Econometrics, Vol. 39, No. 1-2, 1988, pp. 199-211. doi:10.1016/0304-4076(88)90045-0
[13]	C. W. J. Granger, “Development in the Study of Cointegrated Economic Variables,” Oxford Bulletin of Economics and Statistics, Vol. 48, No. 1986, pp. 213-228.
[14]	R. F. Engle and C. W. J. Granger, “Cointegration and ErrorCorrection: Representation, Estimation and Testing,” Econometrica, Vol. 55, No. 2, 1987, pp. 251-276. doi:10.2307/1913236
[15]	R. F. Engle and B. S. Yoo, “Forecasting and Testing in Cointegrated Systems,” Journal of Econometrics, Vol. 35, No. 1, 1987, pp. 143-159. doi:10.1016/0304-4076(87)90085-6
[16]	D. Dickey and W. A. Fuller, “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root,” Econometrica, Vol. 49, No. 4, 1981, pp. 1057-1072. doi:10.2307/1912517
[17]	J. G. MacKinnon, “Critical Values for Cointegration Tests,” In: R. F. Engle and C. W. J. Granger, Eds., Long-Run Economic Relationships: Readings in Cointegration, Oxford University Press, Oxford, 1991, pp. 267-276.
[18]	A. Banik and S. O. Iyare, “Globalization, Model for Competitiveness and Human Skill development in the Caribbean,” Proceedings of the Twelfth Annual Conference: Global Awareness Society International, Vol. 12, 2003, pp. 179-191.