Human Capital and Economic Growth in India: The ARDL Approach
Keywords:
Human Capital, Physical Capital, Economic Growth, ARDL Model, Bound Test.
Abstract
We used time series data on variables, real GDP, physical capital stock and human capital index of India to examine the relationship between these three variables oyer the period 1972-2019. The auto-regressive distributed lag (ARDL) model and the bound test of co-integration reveal that physical capital stock, human capital index and GDP are co-integrated only when GDP is used as the dependent variable. Moreover, the negative and statistically significant value of the coefficient of adjustment in the error correction model further reinforces that there is a long-run relationship between these variables. This long-run relationship also reveals that both physical capital stock and the human capital index positively impact GDP growth in India. Growth in the human capital index is not found to be dependent on either GDP or physical capital stock. Since the human capital index is constructed based on years of schooling and returns to education, we infer from it that education stimulates economic growth in India. Hence, India has reaped the benefits in the form of economic growth by adopting the policy of free and compulsory education for its populace.
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References
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Mincer, J. (1984). Human capital and economic growth. Economics of Education Review, 3, 195-205. https://doi.org/10.1016/0272-7757(84)90032-3
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Psacharopoulos, G., & Woodhall, M. (1985). Education for development: An analysis of investment choice. Oxford University Press: Washington.
Rebelo, S.T. (1991). Long-run policy analysis and long-run growth. Journal of Political Economy, 99(3), 500-521. https://doi.org/10.1086/261764
Romer, P.M. (1990). Endogenous technological change. Journal of Political Economy, 98(5), 71-101. https://doi.org/10.1086/261725
Sakamota, A., & Powers, P.A. (1995). Education and the dual labour market for Japanese men. American Sociological Review, 60, 222-246.
Schultz, T.W. (1971). Investment in Human Capital: The Role of Education and of Research. New York: Free Press. https://doi.org/10.2307/1237858
Schultz, T.W. (1961). Investment in human capital. The American Economic Review, 51, 1-17. https://www.jstor.org/stable/1818907
Solow, R.M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70, 65-94. https://doi.org/10.2307/1884513
Tamura, R. (2006). Human capital and economic development. Journal of Development Economics, 79(1), 26-72. https://doi.org/10.1016/j.jdeveco.2004.12.003
Toda, H.Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Econometrics Journal, 66, 225-250.
Vaganova, O., Rudenko, I., Markova, S., Smirnova, Z., & Kutepov, M. (2019). The use of educational video materials in educational process of a higher educational institution. Amazonia Investiga, 8(22), 216-222. Retrieved from https://www.amazoniainvestiga.info/index.php/amazonia/article/view/308
World Bank. (2018). India development update: India’s growth story. New Delhi. Retrieved from https://acortar.link/hwKV56
Zang, C., & Lihuan, Z. (2011). The composition of human capital and economic growth: evidence from China using dynamic panel data analysis. China Economic Review, 22, 165-171. https://doi.org/10.1016/j.chieco.2010.11.001
Zivot, E., & Andrews, D.W.K. (1992). Further evidence on the Great Crash, the Oil-Price shock, and the unit-root hypothesis. Journal of Business and Economic Statistics, 10(3), 251-270. https://doi.org/10.2307/1391541
Arrow, K.J. (1962). The economic implications of learning by doing. Review of Economic Studies, 29, 155-73. https://doi.org/10.2307/2295952
Asteriou, D., & Agiomirgianakis, G.M. (2001). Human capital and economic growth: time series evidence from Greece. Journal of Policy Modeling, 23, 481-89. https://doi.org/10.1016/S0161-8938(01)00054-0
Becker, G.S. (1965). A theory of the allocation of time. Economic Journal, 75, 493–517. https://doi.org/10.2307/2228949
Benhabib, J., & Spiegel, M. (1994). The role of human capital in economic development: evidence from aggregate cross-country data. Journal of Monetary Economics, 34, 143-173. https://doi.org/10.1016/0304-3932(94)90047-7
Bils, M., & Klenow, P.J. (2000). Does schooling cause growth? American Economic Review, 90, 1160-1183. https://www.aeaweb.org/articles?id=10.1257/aer.90.5.1160
Bo-nai, F., & Xiong-Xiang, L. (2006). A study on the rate of contribution of education investment to the economic growth in China. Higher Education Press and Springer-Verlag, Front. Educ, 4, 521-532. https://doi.org/10.1007/s11516-006-0027-y
De Meulemeester, J.L., & Rochat, D. (1995). Causality analysis of the link between higher education and development. Economics of Education Review, 14, 351-61. https://doi.org/10.1016/0272-7757(95)00015-C
Dickey, D.A., & Fuller, W.A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366), 427. https://doi.org/10.2307/2286348
Diebolt, C., & Hippe, R. (2019). The long-run impact of human capital on innovation and economic development in the regions of Europe. Applied Economics, 51, 542-563. https://doi.org/10.1080/00036846.2018.1495820
Feenstra, R.C., Robert, I., & Marcel, P.T. (2015). The next generation of the Penn world table. American Economic Review, 105, 3150-3182. available for download at www.ggdc.net/pwt
Foster, A., & Rosenzweig, M. (1996). Technical change and human capital returns and investments: evidence from the green revolution. American Economic Review, 86, 931-953. https://www.jstor.org/stable/2118312
Haldar, S.K., & Mallik, G. (2010). Does human capital cause economic growth? A case study of India. International Journal of Economic Sciences and Applied Research, 3, 7-25. http://ijbesar.teiemt.gr/docs/volume3_issue1/human_capital.pdf
Hanushek, E. A. (2013). Economic growth in developing countries: the role of human capital. Economics of Education Review, 37, 204-212. https://doi.org/10.1016/j.econedurev.2013.04.005
In, F., & Doucouliagos, C. (1997). Human capital formation and US economic growth: a causality analysis. Applied Economics Letters, 4, 329-31. https://www.tandfonline.com/doi/ref/10.1080/758532603?scroll=top
Kwiatkowski, D., Phillips, P.C.B., Schmidt, P., & Shin, Y. (1992). Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root. Journal of Econometrics, 54, 159-178.
Loening, J.L. (2004). Time series evidence on education and growth: the case of Guatemala 1951-2002. Revista de análisis economic, 19. https://acortar.link/CeOwFR
Lucas, R.E. Fr. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22, 3-42. https://doi.org/10.1016/0304-3932(88)90168-7
Mankiw, G., Romer, D., & Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107, 407-438. https://doi.org/10.2307/2118477
Mincer, J. (1984). Human capital and economic growth. Economics of Education Review, 3, 195-205. https://doi.org/10.1016/0272-7757(84)90032-3
Narayan, P.K., & Smyth, R. (2004). Temporal causality and the dynamics of exports, human capital and real income in China. International Journal of Applied Economics, 1, 24-45. https://ssrn.com/abstract=2084677
Nelson, R., & Phelps, E. (1966). Investment in humans, technological diffusion and economic growth. American Economic Review, 56, 69-75. https://www.jstor.org/stable/1821269
Pesaran, M.H., Shin, Y., & Smith, R. (2001). Bounds testing Approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289-326. https://www.jstor.org/stable/2678547
Pesaran, M.H., & Shin, Y. (1999). An autoregressive distributed lag modelling approach to co-integration analysis. In S. Strom (ed). Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge University Press, Cambridge. https://acortar.link/skNyt5
Pradham (2009). Education and economic growth in India: Using error correction modelling. International Research Journal of Finance and Economics, 25. https://mpra.ub.uni-muenchen.de/48524/
Psacharopoulos, G., & Woodhall, M. (1985). Education for development: An analysis of investment choice. Oxford University Press: Washington.
Rebelo, S.T. (1991). Long-run policy analysis and long-run growth. Journal of Political Economy, 99(3), 500-521. https://doi.org/10.1086/261764
Romer, P.M. (1990). Endogenous technological change. Journal of Political Economy, 98(5), 71-101. https://doi.org/10.1086/261725
Sakamota, A., & Powers, P.A. (1995). Education and the dual labour market for Japanese men. American Sociological Review, 60, 222-246.
Schultz, T.W. (1971). Investment in Human Capital: The Role of Education and of Research. New York: Free Press. https://doi.org/10.2307/1237858
Schultz, T.W. (1961). Investment in human capital. The American Economic Review, 51, 1-17. https://www.jstor.org/stable/1818907
Solow, R.M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70, 65-94. https://doi.org/10.2307/1884513
Tamura, R. (2006). Human capital and economic development. Journal of Development Economics, 79(1), 26-72. https://doi.org/10.1016/j.jdeveco.2004.12.003
Toda, H.Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Econometrics Journal, 66, 225-250.
Vaganova, O., Rudenko, I., Markova, S., Smirnova, Z., & Kutepov, M. (2019). The use of educational video materials in educational process of a higher educational institution. Amazonia Investiga, 8(22), 216-222. Retrieved from https://www.amazoniainvestiga.info/index.php/amazonia/article/view/308
World Bank. (2018). India development update: India’s growth story. New Delhi. Retrieved from https://acortar.link/hwKV56
Zang, C., & Lihuan, Z. (2011). The composition of human capital and economic growth: evidence from China using dynamic panel data analysis. China Economic Review, 22, 165-171. https://doi.org/10.1016/j.chieco.2010.11.001
Zivot, E., & Andrews, D.W.K. (1992). Further evidence on the Great Crash, the Oil-Price shock, and the unit-root hypothesis. Journal of Business and Economic Statistics, 10(3), 251-270. https://doi.org/10.2307/1391541
Published
2023-08-30
How to Cite
Alam, F. (2023). Human Capital and Economic Growth in India: The ARDL Approach. Amazonia Investiga, 12(68), 9-20. https://doi.org/10.34069/AI/2023.68.08.1
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