Human Capital Formation and Economic Development in Karnataka: An Econometric Analysis

Abstract

This paper overviews the economic development and human capital formation in Karnataka. The present study is based on secondary data sources. The study period is 1991 to 2016.The study area is Karnataka state. The database is taken from RBI handbook of statistics, Ministry of Human Resource Department (MHRD) Government of India, Registrar General of India, Primary Census Abstract 2011, and India stat. In order to study the performance of human development in Karnataka, the education and health sectors have considered. Tools like Johansen cointegration and Error Correction Model (ECM) for determining long run and short run relation between factors determining human capital formation in Karnataka. Granger causality test used to examine the causality relation among human capital formation determinants in Karnataka. The present study deals with analytical part of human capital formation on economic development in the state during last three decades. The present study attempts to investigate how expenditure on education, health and Development Expenditure help to economic growth that is NSDP (Net State Domestic Product) in Karnataka during reform period. The empirical analysis is conducted through a correlation analysis and time series econometrics based on Johansen cointegration and Vector Error Correction Model to detect long run and short run causality between variables of the model respectively. The correlation results showed that economic growth has strong positive association with development, education and health expenditure while EE has positive association with health expenditure; it implies that expenditure on human capital formation definitely helps to economic growth in the long run at least not immediately. Regarding the long run estimation, the empirical results found that evidence of expenditure on development activities and education helped for economic growth in Karnataka while health variables are not significant but it has indirect implication on growth prospect.