Does Human Capital Play a Role in Economic Growth? A Time Series Study in India

Abstract

The study examines the impact of human capital on economic growth in India for the period 1960 to 2004. Assuming that the mechanism for developing human capital is formal education, we examine the long-run relationship between gross enrolment ratios at different level of education and per capita gross domestic product to find out a relationship between human capital and economic growth. Time series techniques are used to look at the long-run causal relationships among the variables. Johansen Cointegration Test (Johansen, 1988) has been applied to identify the presence of long-run relationship among the variables. To determine the direction of causal relationship Granger Causality Test in the Vector Error Correction Framework (Granger, 1988) is used. The results indicate long-run relationship among human capital and economic growth. However, the same relationship is absent in the short-run. A unidirectional causal relationship between per capita GDP and human capital has been identified from per capita GDP to the human capital formation.