Social Expenditure and Economic Growth in Gujarat- Econometric Exploration

Abstract

Increase in health and educational expenditure has an immense impact on the socio-economic conditions in any country at large and state at regional level. There is no definite agreement as to whether the rising health and educational expenditure are causally affecting to economic growth. This study endeavors Gujarat State as a case to examine empirically a causal relationship among health expenditure, educational expenditure and economic growth using time series data from 1980-81 to 2016-17 for State gross domestic product (SGDP), health expenditure and educational expenditure. The findings from the Vector Error Correction Model (VECM) indicated that there exist a short-run relationship among State health expenditure (HEX), educational expenditure (EXP) and GDP. We also confirmed the Granger unidirectional causality from log State level GDP to log Educational Expenditure and log of Health Expenditure. These results were further confirmed by findings from the impulse response function. This indicates that Gujarat represent an example of a developed state where the size of health and educational expenditure expands in the process of economic transformation.