NEXUS BETWEEN GROWTH AND HUMAN DEVELOPMENT INDEX:EVIDENCE FROM INDIA AND INDIAN STATES.

 Article No-10, Vol-3,Issue-2,2018,96-118,July-December, Assumption University e Journal of Interdisciplinary Research, Graduate School of e Learning.Thailand.

NEXUS BETWEEN GROWTH AND HUMAN DEVELOPMENT INDEX:EVIDENCE FROM INDIA AND INDIAN STATES.
.......................Dr.DEBESH BHOWMIK

Assumption University-eJournal of Interdisciplinary Research (AU-eJIR): Vol. 3. Issue.2, 2018
ISSN: 2408-1906 Page 1
NEXUS BETWEEN GROWTH AND HUMAN DEVELOPMENT INDEX: EVIDENCE FROM INDIA AND INDIAN STATES
Dr. Debesh Bhowmik
(Retired Principal and Associated in Indian Economic Association and
The Indian Econometric Society)
Abstract: In this paper, the author endeavors to show the nature of HDI and the relation between HDI of India and economic growth, rate of unemployment, GDP and GDP per capita respectively during 1990-2016. The author used semi log and double log regression model and also used Bai-Perron Model (2003) for structural breaks, Granger model (1969) for causality, Johansen model (1988,1996) for cointegration and vector error correction and Sala-i-Martin(1996) model for convergence test in Indian States. The paper concludes that HDI of India has been increasing at the rate of 1.55% per year from 1990 to 2016.HDI has three upward structural breaks in 1996, 2004 and 2011 respectively. HDI of India does not follow random walk hypothesis. One per cent increase in HDI of India led to 1.41% increase in growth rate per year during 1990-2016. This relationship is co-integrated and they have no bidirectional causality. Their VECM is unstable and non-stationary and error correction is significant and fast for equation Δlog (GDP growth rate). Moreover, one per cent rise in HDI per year led to 5.86% rise in GDP, 4.828 % increase in GDP per capita and 0.5028% decrease in unemployment rate per year respectively during 1990-2016 in India. There is positive association between HDI, GSDP and GSDP per capita of all states in 1983, 1987-88, 1999-00, 2004-05, 2009-10 and 2011-12. These relationships are valid for high plus medium human development and low human development states of India for those years. In Fixed effect model of panel data, the regression between of all states’ HDI and GSDP per capita is positive. This paper finds sigma convergence of HDI of all states. Only four states showed negative growth of HDI in spite of their rising trends of social sector expenditure. The paper recommended to enhance government expenditure on education and health and to emphasis gender budgeting and FDI inflows.
Key Words-Human Development Index, Economic Growth, Cointegration, Causality, Vector Error Correction, HDI of Indian States

JEL Codes-O10, O15, O57, C23

1. INTRODUCTION

Economic thoughts on the recognition of human capital as central force in economic theory since long period were relevant when Adam Smith (1776) argued that growth means not only capital accumulation and technical progress but also growth of human capital which play a critical role in the progress of economic development. With obvious reason, Marshall (1890) stressed education and parental care as investment in human capital. Then Schultz (1963) in the human capital model showed how education allows the production process to benefit from positive externalities and promotes growth. Gary Becker (1964) said that human capital investment increases the ability of people to increase wealth because human capital is the investment in training, education, health, values and other aspect of human potential. After a decade, Lucas (1988) in the endogenous growth theory emphasized investment in human capital more directly and linked it to long term rates of economic growth. In internal growth models, Romer (1986; 1990), and later economists investigated economic growth through physical and human capital accumulation. Besides labor and capital, human capital had a significant place in endogenous growth models and additionally the effects of human capital on economic growth were pointed out in previous studies in the literature (Telatar & Terzi,2010). In analyzing the process of human capital, Hahbub Ul Haq (1995) defined human development paradigm as “the process of enlarging people’s choices”. Amartya Sen (1999) went further and argued that standard of living of a society should be judged not by the average level of income but by people’s capabilities to lead the life they value. Author argued that development ought to be viewed as capability expansion and freedom, rather than being viewed as purely economic phenomenon. Additionally, Becker, Murpy, & Tamura (1990) in a study titled “Human Capital, Fertility and Economic Growth”, indicated higher returns of human capital and education in developed countries than in developing countries. Based upon the aforementioned information, one can see that the size of a population alone is not sufficiently effective on economic growth and the bottom line is the knowledge, skills, and experience-like attributes of the population.
Human development has positive impact on economic growth through improvement of human capital because education has strong effects on labour productivity and improvement in health and nutrition enhances productivity and income. More educated people are likely to innovate and thus affect everyone’s productivity. Even, education may affect per capita income growth through reducing population growth. Distribution of income and assets has an effect on economic growth because of better nutrition and strong demand for education and hence higher productivity. Education alone, of course, cannot transform an economy. The quantity and quality of investment, domestic and foreign together constitute other important determinants of economic performance. Education and health may also have strong indirect impacts on economic growth through their effects on distribution of income and education even more so through its impact on health. Tailor et al (1999) expressed that in developing countries economic growth is needed for reducing poverty, providing access to basic social services, building of basic capabilities in the people and generating the resources required for human development. Economic growth is a necessary but not sufficient condition for the promotion of human development. Beyond quantity, it is the quality of growth that is crucial for human well-being. Growth that is jobless, ruthless, voiceless, rootless and futureless is not favorable to human development .Economic growth must be equitable for its benefits to have an impact on people’s lives. Human development and economic growth have two-way causal relationship. Human development raises levels of education, health, and nutrition in an economy all of which enhance productivity of the economy. And growth can also be linked to many other elements of human development such as political freedom, cultural heritage, societal progress and environmental sustainability. Because, modern growth theory explains economic growth rate primarily in terms of expanded human and social capital rather than physical capital. On the one hand, economic growth provides the resources to permit sustained improvement in human development. On the other hand, sustained improvement in the quality of human capital is an important contribution to economic growth.
7. CONCLUSIONS

The paper concludes that HDI of India has been increasing at the rate of 1.55% per year from 1990 to 2016.HDI has three upward structural breaks in 1996, 2004 and 2011 respectively. One per cent increase in HDI of India led to 1.41% increase in growth rate during 1990-2016.This relationship between HDI and growth is co-integrated and they have no causality. Their VECM is stable but nonstationary and error correction is significant and fast for equationΔlogx3t.Moreover, one per cent rise in HDI per year led to 5.86% rise in GDP, 4.828 % increase in GDP per capita and 0.5028% decrease in unemployment rate per year respectively during 1990-2016 in India. Even, HDI has unidirectional causality with GDP and GDP per capita .There is positive association among GSDP and GSDP per capita with high plus medium human development and low human development states of India for those years. In Fixed effect model of panel data, the regression between of all states’ HDI and GSDP percapita is positive .This paper finds sigma convergence of HDI of all states. Only four states showed negative growth of HDI in spite of their rising trends of social sector expenditure. The paper recommended to enhance government expenditure on education and health including gender budgeting and FDI inflows.

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