Volume-7; Issue-1; Jan.-June-2017; http://www.ijfar.com/ pp.

14-19; ISSN: 2350-0115

Are Health and Education Catalyst for Economic Growth in

India? A Make in India Perspective
Harpreet Kaur
Doctoral Research Scholar in Economics
Central University of Punjab, Bathinda, India-151001

P. K. Mishra
Associate Professor in Economics
Central University of Punjab, Bathinda, India-151001

Abstract

Since a long time, human capital has been recognized as one of the key determinants
of the real economic growth of developing as well as developed nations. Human capital contributes to
the long-run economic growth and development of a nation mainly by increasing the labour
productivity. In this context, the role of health and education is noteworthy. Higher levels of health
and education contribute to sustained inclusive growth and development. Good physical and mental
health standards increase the life expectancy, increase the infant survival rate, and encourage people
to perform their socio-economic responsibilities efficiently. Higher levels of education increases the
marginal productivity of physical capital and labour force, and thereby promotes national income of
the country. It is with this backdrop, this paper is an attempt to examine linkages between health,
education and economic growth in India over 1995 to 2014 using time series regression, and provides
the evidence of their significant linkages. The findings suggest that higher rate of economic growth in
India can be achieved through the initiatives such as Make in India which emphasizes on productive
investment, innovation, skill development, protecting intellectual property rights and emergence of
building best-in-class manufacturing infrastructure in the country. All these ultimately call for the
emphasis on making the work force healthier, educated and skilled. Therefore, health and education
can be considered as the catalyst for inclusive and sustainable growth and development of Indian
economy.

Keywords: Health, Education, Inclusive Growth, Make in India.

1. Introduction

Since a long time, human capital has been recognized as one of the key determinants of the real
economic growth of developing as well as developed nations. Human capital contributes to the long-
run economic growth and development of a nation mainly by increasing the labour productivity. In
this context, the role of health and education is noteworthy. Higher levels of health and education
contribute to sustained inclusive growth and development (Mishra & Mishra, 2015). Good physical
 Volume-7; Issue-1; Jan.-June-2017; http://www.ijfar.com/ pp. 14-19; ISSN: 2350-0115

and mental health standards increase the life expectancy, increase the infant survival rate, and
encourage people to perform their socio-economic responsibilities efficiently (Weil, 2014). Higher
levels of education increases the marginal productivity of physical capital and labour force, and
thereby promotes national income of the country.

The growth literature put forward by Adam Smith, David Ricardo, Thomas Robert Malthus,
Joseph Alois Schumpeter, John Maynard Keynes, Roy F. Harrod, E. Domar, Robert M. Solow and
many others from a long past clearly underline the role of investment as the foremost essential pre-
condition for economic growth (Aghion et al. 2013; Keynes, 1936; Golub et al. 2000; Sato, 1964;
Solow, 1956; Malthus, 1951). Besides, the new growth theorists including Robert E. Lucas, Paul
Romer, Gregory Mankiw, and David N. Weil laid emphasis on the role of human capital as an
important factor of production along with the labour and capital (Bethmann, 2007; Barro, 1991;
Edwards, 2004; Dewan & Hussein, 2001; Dinopoulos et al. 1996). The 20th century growth
experience of Japan and South Korea at least proves that investment in human capital (health &
education) can lead to higher levels of economic growth (Lee, 2012).

UNDP (2014) rightly conceptualized human capital as the abilities and skills of human resources
of a country, and also mentioned that the human development is a process of creating an environment
in which people can develop their full potential and providing them with the tools to enhance their
own human capabilities i.e. to accumulate knowledge, to preserve their health, to gain access to
resources and to participate in the economy. As such governments of both developing and developed
economies have been investing on human capital thereby generating the absorptive capacity of the
economy (Fu et al. 2010). Precisely, investment in physical capital is rewarding only when the
economy is able to absorb it. And, such absorptive capacity of the economy is created when it has
sufficiently developed human resources measured by higher levels of education and skill
development, and as reflected in healthy mind and physique of people.

Particularly, the role of health and education in the economic growth and development of an
emerging market economy like India cannot be overlooked. India through a flagship movement, well
known as Make in India aims to simplify the investment procedure, foster innovation, enhance skill
development, protect intellectual property, and build best-in-class manufacturing infrastructure in the
country. In addition, it seeks to encourage domestic and foreign investors by promising them the
business and investment friendly environment. Thus, health and education would play a critical role in
determining the success of this Make in India initiative. The success of this initiate depends largely
on the availability of healthier, educated and skilled manpower. Arabi et al. (2013) rightly remarked
that the more literate and educated people are better trained, and the healthier people are better
productive.

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It is with this backdrop, this paper is an attempt to examine linkages between health, education
and economic growth in India over 1995 to 2014 using time series regression, and to provide the
evidence of their significant linkages. The rest of the paper is organised as follows: Section 2 makes a
note of the data and methodology used in the study; Section 3 reports the results and makes the
discussion of the significant findings; and Section 4 concludes.

2. Data and Methodology

In order to examine the linkages between health, education and economic growth in India over
1995 to 2014, we have taken GDP per capita at constant 2010 US$ as proxy for economic growth
(Gt), and Gross Primary Enrolment Ratio as percentage of population of official primary education
age (Et) as proxy for improvement in education & Life Expectancy at Birth in years (Ht) as proxy for
improvement in health in the country. All the data for the sample period have been taken from the
World Development Indicators of World Bank. Then the time series are converted to their natural
logarithms so as to avoid the likely problems of hetero-skedasticity in time series regression. Among
these variables, Gt and Ht are integrated of order one, and Et is integrated of order two. Therefore, the
relationship between education, health and real economic growth in India has been examined by
employing the Granger causality test procedure as proposed by Toda & Yamamoto (1995). This
method is relatively more efficient in small sample data sizes and is particularly appropriate for time
series for which the order of integration is not known, or may not be necessarily the same, or the order
of integration is two or more. The basic idea in the Toda & Yamamoto (1995) procedure is artificially
augmenting the correct Vector Auto-regression (VAR) order, k with d extra lags, where d is the
maximum likely order of integration of the time series in the empirical system. In our case, we
augmented the VAR by two as the highest order of integration is two for the variable TII. This
augmented VAR system is estimated using Seemingly Unrelated Regression (SUR) technique of time
series regression analysis. Then the null hypothesis of non-causality between education, health, and
economic growth is tested by the Wald test.

3. Results and Discussion

In the first step, the order of integration for each of the three variables used in the analysis has
been determined. The Augmented Dickey-Fuller (ADF) unit root test has been employed for this
purpose. The results of ADF unit root test are reported in Table -1.

Table 1: Results of ADF Unit Root Test (with Trend & Intercept)
ADF Stat. at level ADF Stat. at 1st Diff. ADF Stat. at 2nd Diff.
Variables Decision
(p-value) (p-value) (p-value)
Gt -2.281 (0.422) -3.684 (0.05)** NA I(1)

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Et -1.082 (0.905) -2.797 (0.215) -5.257 (0.003)* I(2)

Ht -2.426 (0.353) -4.091 (0.029)** NA I(1)

Source: Authors Own Estimation; **Significant at 5% level

It is evident from Table-1 that the variables Gt and Ht are integrated of order one, and Et is
integrated of order two as indicated by the p-values of ADF statistics at specified levels of
significance. Thus, we augmented the VAR by two as the highest order of integration is two for the
variable Et. Then we selected the optimal lag length by Akaike Information Criterion (AIC) and it is
found one.

Table 2: Results of Toda & Yamamoto Granger Non-Causality Test

Null Hypotheses of No Granger Causality Chi-Square Statistic (d.f) p-value Decision

Et does not Granger Cause Gt 25.639 (3) 0.000* Reject

Ht does not Granger Cause Gt 22.482 (3) 0.000* Reject

Et & Ht Jointly do not Granger Cause Gt 51.098 (6) 0.000* Reject

Gt does not Granger Cause Et 5.317 (3) 0.150 Accept

Gt does not Granger Cause Ht 15.553 (3) 0.001* Reject

Source: Authors Own Estimation

Therefore, we estimated a VAR model of order 3 by SUR and the Wald test is carried out using
standard chi-square distribution. And, the results of this Toda & Yamamoto Ganger non-causality test
are reported in Table-2. The results show that the null hypothesis that Et does not Granger Cause Gt
is rejected at 1 percent level of significance. This means that the improvement in education has
favourable impacts on real economic growth of the country. However, the hypothesis that Gt does not
Granger Cause Et could not be rejected at 1 percent level of significance. This indicates that the
economic growth has got little pulling effect on education sector in India. Second, the null hypotheses
that Ht does not Granger Cause Gt and Gt does not Granger Cause Ht are rejected at 1 percent
level of significance. This means economic growth measured by per capita GDP and health sector
development in India contains some power to predict each other. In other words, feedback causality
runs between them. Third, the null hypothesis that Et & Ht jointly do not Granger Cause Gt is
rejected at 1 percent level of significance. This means that the improvements in education and
healthcare can influence the changes in economic growth of the country. In other words, education
and health are two important determinants of economic growth in India. Overall, we found the
positive impact of education and health on real economic growth of India. Further, it is found that the
higher rate of economic growth of the country has stimulating effect on the health sector.

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4. Conclusion

In the wave of second generation reforms, the present Government of India launched its flagship
initiative Make in India on September 25, 2014 so as to make the country catch up the growth status
of developed world through productive investments, innovations, skill development, protecting
intellectual property rights, and building best-in-class manufacturing infrastructure. This initiative
largely depends on the availability of healthier and educated manpower. In this sense, health and
education constitutes the pre-condition for human development as well as the backbone of the entire
socio-economic system in the country. In this context, this paper examined whether health and
education can be catalysts for the rapid growth of Indian economy. The findings of the study well
justify the presumption of the study that health and education are two important determinants of
higher economic growth in India. This finding is significant from the policy point of view. In order to
have healthier and educated manpower, the national architects should focus on those activities which
would ultimately lead to increase in human capital in the country. In this direction, the governments
efforts in the form of emphasis on skill embedded vocational and professional education, increasing
pupils retention in schooling until the level of higher education, and providing better healthcare
services, and like would go a long way in sustaining the rapid growth path.

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