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Accounting for Growth Effects of Age Structure Transition through Public Education Expenditure: New Macroeconomic Evidence from India

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  • M. R. Narayana

Abstract

This article quantifies the growth effects of age structure transition through current public education expenditure. Using the National Transfer Accounts’ (NTA) First Demographic Dividend (FDD) model, growth effects are accounted by the impact of current public education expenditure on economic support ratio (ESR) and labour productivity through human capital investments. The results offer new macroeconomic evidence. Age structure transition reduces the education dependency ratio (EDR) by all levels of education but the highest in the elementary education. This impacts on a long-term decline in enrolment in elementary education where the current gross enrolment ratio (GER) is close to 100 per cent and a decline in current public education expenditure. Other things being equal, the resultant potential savings, or the availability of extra budgetary resources, is a new way of financing the investment requirements for secondary and higher education with the aim of increasing national economic growth through human capital investments. In particular, growth effects are shown to be positive, higher and longer up to 2050, if the current public education spending is reallocated more for the secondary and higher education. Surprisingly, growth effects are explained less by the ESR than labour productivity. This justifies a higher human capital investment to enhance labour productivity for attainment of higher economic growth. The afore- mentioned macroeconomic framework, results and implications are of general relevance for other developing countries in South Asia and elsewhere in the world. JEL Classification: E65, H52, J11

Suggested Citation

  • M. R. Narayana, 2018. "Accounting for Growth Effects of Age Structure Transition through Public Education Expenditure: New Macroeconomic Evidence from India," South Asian Journal of Macroeconomics and Public Finance, , vol. 7(2), pages 174-211, December.
    • Handle: RePEc:sae:smppub:v:7:y:2018:i:2:p:174-211
    DOI: 10.1177/2277978718795773
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    More about this item

    Keywords

    Age structure transition; public education expenditure; human capital investment; economic growth; National Transfer Accounts; demographic dividend;
    All these keywords.

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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