Higher Education, Real Income and Real Investment in China: Evidence From Granger Causality Tests

This paper employs cointegration and error‐correction modelling to test the causal relationship between real income, real investment and tertiary education using data for the People’s Republic of China over the period 1952–1999. To proxy tertiary education we use higher education enrolments and higher education graduates in alternative empirical specifications. One of the paper’s main findings is that real income, real investment and tertiary education are cointegrated when real investment is the dependent variable, but are not cointegrated when either tertiary education or real income is the dependent variable. We also extend the in‐sample analysis to examine the decomposition of variance and impulse response functions.