Interlink between human capital and income in Indian States: an empirical investigation for the period 1998-2019

Economic openness undoubtedly has income-increasing effects across all economies, but it has led to increasing inequality within and across countries.India and its states are no exceptions in this regard.There have been many endogenous factors that justify the increasing growth trends in gross and per capita incomes in the postopenness phase.Human capital formation through spending on health and education heads has been one such endogenous factor.The present study aims to investigate the role of education and health expenditure on income in India's sixteen major states/union territories (UTs) for the 1998-2019 period.By Johansen cointegration analysis, it is found that there is a longrun association among education expenditure, health expenditure and income in fourteen states: Andhra Pradesh, Assam, Bihar, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, National Capital Territory (NCT) Delhi, Punjab, Rajasthan, Tamil Nadu and Uttar Pradesh.From vector error correction mechanism (VECM) estimation, the long-run causal relation jointly from education and health expenditure to income has been found in Assam, Bihar, Haryana, Maharashtra, NCT Delhi, and Rajasthan.Employing the Granger causality test in a vector autoregressive (VAR) setup, mixed results were found for both unidirectional and bidirectional causality.