ISSN 1471-0498

DEPARTMENT OF ECONOMICS

DISCUSSION PAPER SERIES

EDUCATIONAL HUMAN CAPITAL AND LEVELS OF INCOME:

EVIDENCE FROM STATES IN INDIA, 1965-92

Kamakshya Trivedi

Number 97

March 2002

Manor Road Building, Oxford OX1 3UQ

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MLITRAT FLITRAT MSEC FSECIMLR 1IFLR 0.958 1MSEC 0.829 0.82 1FSEC 0.9056 0.9579 0.909 1

Table 1: Correlation Matrix of Education Measures

(obs=476)

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47

2a 2b 2c 2d 2e 2f 2gmodel PMG PMG PMG PMG PMG PMG PMG

lagged (t-1) income φ ������� ������� ������� ������� ������� ������� �������

>������@ >������@ >������@ >������@ >������@ >������@ >������@

lagged(t-2) male high θ ������ ������ ������ ������

school enrollment >�����@ >�����@ >�����@ >�����@

lagged(t-2) female high θ ������ ������ ������

school enrollment >�����@ >�����@ >�����@

lagged (t-2) infant mortality rate θ ������� ������� ������� ������� �������

>������@ >������@ >������@ >������@ >������@

lagged(t-2) physical θ ������ ������ ������ ������ ������ ������

infrastructure >�����@ >�����@ >�����@ >�����@ >�����@ >�����@

lagged(t-2) [Male minus Female θ �������

high school enrollment] >������@

lagged(t-2) [Average of Male θ ������

and female enrollment] >������@

lagged(t-2) [3 lag years MA of θ �������

infant mortality rate] >������@

lagged(t-2) [3 lag years MA of θ ������

male high school enrollment] >�����@

lagged(t-2) [3 lag years MA of male θ �������

minus female high school enrollment] >������@

fixed effects µ <HV <HV <HV <HV <HV <HV <HV

number of observations NT ��� ��� ��� ��� ��� ��� ���

Maximised Log Likelihood ������ ������ ������ ������ ������ ������ ������

Standard error of Regression ����� ����� ����� ����� ����� ����� �����

LM bar test of non- ������ ������ ����� ����� ������ ����� ������

stationary residuals

No. of states for which Ho. Of � � � � � � �

normality of residuals rejected

F-test of No AR(1) residual ����� ����� ����� ����� ����� ����� �����

serial correlation

p-values reported for the F-test of No AR(1) serial correlation in residuals, Durbin (1970), Breusch, Godfrey (1978).

Table 2: Education & levels of Income: 15 States, 1965-92 Dependent Variable: Annual Growth Rate of Real State PerCapita Income

Notes: t-statistics are are reported in parentheses. Standard error of Regression is the simple average of consistent estimates of equation standard errors. The LM bar test of Non-stationary residuals is based on Im, Pesaran and Shin (1997). 5% critical values between 3.63 and 3.73.Residuals for each state were tested for Normality using the Shapiro-Wilk (1965) test.

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49

Robustness of Long-Run PMG Coefficient on

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0

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lagged (t-1) income φ ������� ������� ������� ������� ������� �������

>������@ >������@ >������@ >������@ >������@ >������@

lagged(t-2) male high θ ������ ������ ������

school enrollment >�����@ >�����@ >�����@

lagged (t-2) infant mortality θ ������ ������� ������ �������� ������� ������

rate >�����@ >������@ >�����@ >������@ >������@ >�����@

lagged(t-2) physical θ ������ ������ ������ ������ ������ ������

infrastructure >�����@ >�����@ >�����@ >�����@ >�����@ >�����@

lagged(t-2) [Ratio of Male to θ ������� ������� �������

female enrollment] >������@ >������@ >������@

lagged(t-2) government θ ������

development expenditure >�����@

lagged(t-2) real fixed capital θ �������

in factory sector >������@

lagged(t-2) male literacy θ ������ ������

rate >������@ >�����@

lagged(t-2) female literacy θ ������

rate >������@

lagged(t-2) [Ratio of Male to θ �������

Female Literacy Rate] >������@

fixed effects µ <HV <HV <HV <HV <HV <HV

number of observations NT ��� ��� ��� ��� ��� ���

Maximised Log Likelihood ������ ������ ������� ������ ������ ������

Standard error of Regression ����� ����� ����� ����� ����� �����

LM bar test of non- ������ ������ ������ ������ ������ ������

stationary residuals

No. of states for which Ho. Of � � � � � �

normality of residuals rejected

F-test of No AR(1) residual ����� ����� ����� ����� ����� �����

serial correlation

Regressions in columns 3d to 3f omit the states Haryana & Assam, on account of missing values.

Table 3: Robustness & Alternative Measures: 15 States, 1965-92 Dependent Variable: Annual Growth Rate of Real State PerCapita Income

Notes: t-statistics are are reported in parentheses.

p-values reported for the F-test of No AR(1) serial correlation in residuals, Durbin (1970), Breusch, Godfrey (1978).

Standard error of Regression is the simple average of consistent estimates of equation standard errors.The LM bar test of non-stationary residuals is based on Im, Pesaran and Shin (1997). 5% critical values between 3.63 and 3.73 for columns 3a to 3f, and between 3.73 and 3.80 for columns 3d to 3f.Residuals for each state were tested for normality using the Shapiro-Wilk (1965) test.

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State Code

Andhra Pradesh 1Assam 2Bihar 3Gujarat 4Haryana 5Jammu & Kashmir 7Karnataka 8Kerala 9Madhya Pradesh 10Maharashtra 11Orissa 14Punjab 15Rajasthan 16Tamil Nadu 18Uttar Pradesh 20West Bengal 21

Table A-1: Sample of 16 States

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D15 Hgxfdwlrq Phdvxuhv

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lqidqw pruwdolw| udwhv iurp wkh Flylo Uhjlvwudwlrq +FU, vdpsoh lv wdnhq iurp ydulrxv lvvxhv ri wkh

sxeolfdwlrq/ Ylwdo Vwdwlvwlfv ri Lqgld/ R!fh ri wkh Uhjlvwudu Jhqhudo/ Jryhuqphqw ri Lqgld1

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dqg Urklql Sdqgh1

57

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D17 Sk|vlfdo Lqiudvwuxfwxuh

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lvvxhv ri wkh VDL/ FVR/ Ghsduwphqw ri Sodqqlqj/ Jryhuqphqw ri Lqgld1 Wkh dfnqrzohgjhg sulpdu|

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duhdv/ d vdpsoh xqlw lv d fhqvxv hqxphudwlrq eorfn zlwk d srsxodwlrq udqjlqj iurp :83 wr 4333186 Lq idfw wkh r!fldo sxeolfdwlrq xvlqj FU gdwd � Ylwdo Vwdwlvwlfv ri Lqgld � urxwlqho| wdexodwhv wkh udwlr ri ylwdo

vwdwlvwlfv rewdlqhg yld wkh FU v|vwhp dqg VUV1 Wkh glvfuhsdqf| lv qrw plqru1 Iru h{dpsoh/ lq 4<;; wkh lqidqw pruwdolw|

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Jryhuqphqw ri Lqgld1 Diwhu 4<:40:5/ wkh vrxufh lv dfnqrzohgjhg wr eh wkh Fhqwudo Hohfwulflw| Dxwkrulw|/ Plqlvwu| ri

Hqhuj|/ Jryhuqphqw ri Lqgld1

58

vrxufhv fkdqjh ryhu wkh |hduv � Plqlvwu| ri Wudqvsruw dqg Frppxqlfdwlrqv/ Plqlvwu| ri Wudqvsruw/

Plqlvwu| ri Vklsslqj dqg Wudqvsruw/ dqg �qdoo|/ Plqlvwu| ri Vxuidfh Wudqvsruw188 L dovr froohfwhg

gdwd rq Vxuidfhg Vwdwh Kljkzd|v � swlsvvkz � zklfk duh d vxevhw ri wrwdo vwdwh kljkzd|v/ dqg kdyh

wkh ghvludeoh ihdwxuh ri phdvxulqj erwk wkh txdqwlw| dqg txdolw| ri wkh urdgv lqiudvwuxfwxuh ri vwdwhv1

Krzhyhu/ vlqfh lq wkh hduo| sduw ri wkh vdpsoh shulrg wkhuh zhuh ihz vxuidfhg vwdwh kljkzd|v wr vshdn

ri/ lw lv gl!fxow wr jhw d frqvlvwhqw vhulhv ryhu wkh zkroh shulrg1 Khqfh zh uhvwulfw dwwhqwlrq wr wrwdo

Vwdwh Kljkzd|v/89

� swlsvkz= ohqjwk ri wrwdo Vwdwh Kljkzd|v +np1, dv d sursruwlrq ri wrwdo vwdwh odqg duhd1

Plvvlqj ydoxhv iru hdfk vwdwh/ wkh exon ri zklfk duh lq wkh hduo| 4<93v/ duh olqhduo| lqwhusrodwhg

xvlqj zlwklq vwdwh jurzwk udwhv1

PEIPCAP PEIPGEN PEIPINDH PTIPSHWPEIPCAP 1PEIPGEN 0.9762 1PEIPINDH 0.8469 0.8591 1PTIPSHW 0.5695 0.5863 0.5379 1

Table A-2: Correlation Matrix of Physical Infrastructure Measures

(obs=521)

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wkdw udwkhu wkdq lqfoxglqj wkh gl�huhqw sk|vlfdo lqiudvwuxfwxuh yduldeohv lq hdfk uhjuhvvlrq/ lw pljkw eh

suhihudeoh wr frqvwuxfw rqh frpsrvlwh lqgh{ ri sk|vlfdo lqiudvwuxfwxuh zklfk pljkw sur{| iru wkh ohyho

ri sk|vlfdo fdslwdo lq hdfk vwdwh1 Khqfh/ d sulqflsdo frpsrqhqwv phdvxuh ri sk|vlfdo lqiudvwuxfwxuh

lv frqvwuxfwhg e| frpelqlqj wkh irxu lqiudvwuxfwxuh yduldeohv18: Wdeoh D06 fdofxodwhv wkh sursruwlrq

ri yduldwlrq h{sodlqhg e| hdfk frpsxwhg sulqflsdo frpsrqhqw/ dqg lw lv fohdu wkdw wkh 4r| sulqflsdo

frpsrqhqw lv pdvvlyho| grplqdqw � lw h{sodlqv ;4( ri wkh vxp ri wkh lqglylgxdo yduldqfhv ri wkh

lqiudvwuxfwxuh phdvxuhv1

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pruh wr lpsuryh wkh urdgv lqiudvwuxfwxuh whqg wr gr pruh ri erwk18:Sulqflsdo Frpsrqhqwv dqdo|vlv lv d vwdwlvwlfdo whfkqltxh zklfk olqhduo| wudqvirupv dq ruljlqdo vhw ri yduldeohv lqwr

d vpdoohu vhw ri xqfruuhodwhg ru ruwkrjrqdo frpsrqhqwv/ zklfk uhsuhvhqw prvw ri wkh yduldwlrq lq wkh ruljlqdo vhw ri

yduldeohv1 Wkh wkhru| dqg xvdjh ri sulqflsdo frpsrqhqwv lv zhoo glvfxvvhg lq Gxqwhpdq +4<;<,1

59

Principal Eigenvalue Proportion CumulativeComponent

1 3.22056 0.8051 0.80512 0.56934 0.1423 0.94753 0.18678 0.0467 0.9942

4 0.02333 0.0058 1(obs=521)

Table A-3: Eigenvalues & Explained Variance

Pruhryhu/ vlqfh lwv hljhqyhfwru |lhogv frh!flhqw zhljkwv zklfk duh doo srvlwlyh/ dv uhsruwhg lq Wdeoh

D07/ lw lv wkh sulqflsdo frpsrqhqw zklfk fdq prvw hdvlo| eh lqwhusuhwhg dv d jhqhudo phdvxuh ri sk|vlfdo

fdslwdo18; Udwkhu vhuhqglslwrxvo|/ wkh uhodwlyh zhljkwv iru hdfk ri wkh lqiudvwuxfwxuh phdvxuhv duh pruh

ru ohvv htxdo lq wkh �uvw sulqflsdo frpsrqhqw= wkh orzhvw zhljkw +3173, iru vwdwh kljkzd|v lv qrw wkdw

gl�huhqw wkdq wkh kljkhvw zhljkw +3187, iru hohfwulflw| jhqhudwlrq1

Principal 1 2 3 4ComponentVariablePEIPCAP 0.53506 -0.23763 -0.43193 0.68606PEIPGEN 0.53914 -0.21486 -0.36788 -0.72652

PEIPINDH 0.51035 -0.24652 0.82314 0.03482

PTIPSHW 0.40321 0.91466 0.02322 0.01696(obs=521)

Table A-4: Eigenvectors & Factor Loadings

D18 Vwdwh Jryhuqphqw Ghyhorsphqw H{shqglwxuh

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ri Lqgld Exoohwlq/ Uhvhuyh Edqn ri Lqgld> dqg iurp Uhsruw rq Fxuuhqf| dqg Ilqdqfh/ Uhvhuyh Edqn

ri Lqgld1

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wkh Vwdwlvwlfdo Devwudfw ri Lqgld +VDL,/ sxeolvkhg e| wkh Fhqwudo Vwdwlvwlfdo Rujdql}dwlrq +FVR,/ Gh0

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uhsuhvhqwlqj d eurdgo| gh�qhg phdvxuh ri sk|vlfdo fdslwdo zrxog eh lqfuhdvlqj lq hdfk phdvxuh ri sk|vlfdo lqiudvwuxfwxuh/

dqg zrxog wkhuhiruh dvvljq srvlwlyh zhljkwv wr hdfk phdvxuh1

5:

Log Real Male Female Spliced Physical Per Capita High School High School Infant Infrastructure

Income Enrollment Enrollment Mortality (PrincipalRate Component)

Andhra Pradesh ����� ������ ������ ������� ������>�����@ >������@ >�����@ >������@ >�����@

Assam ����� ������ ������ ������� ������>�����@ >�����@ >�����@ >������@ >�����@

Bihar ����� ������ ������ ������� ������>�����@ >�����@ >�����@ >�������@ >�����@

Gujarat ����� ������ ������ ������� �����>�����@ >������@ >������@ >������@ >�����@

Haryana ����� ������ ������ ������ �����>�����@ >�����@ >������@ >������@ >�����@

Jammu & Kashmir ����� ������ ������ ������ ������>�����@ >�����@ >�����@ >������@ >�����@

Karnataka ����� ������ ������ ������ �����>�����@ >�����@ >������@ >������@ >�����@

Kerala ����� ������ ������ ������ �����>�����@ >������@ >������@ >������@ >�����@

Madhya Pradesh ����� ������ ������ ������� ������>�����@ >������@ >�����@ >������@ >�����@

Maharashtra ����� ������ ������ ������ �����>�����@ >������@ >������@ >������@ >�����@

Orissa ����� ������ ������ ������� ������>�����@ >������@ >������@ >������@ >�����@

Punjab ����� ������ ������ ������ �����>�����@ >�����@ >������@ >������@ >�����@

Rajasthan ����� ������ ������ ������� ������>�����@ >������@ >�����@ >������@ >�����@

Tamil Nadu ����� ������ ������ ������� �����>�����@ >������@ >������@ >������@ >�����@

Uttar Pradesh ����� ������ ������ ������� ������>�����@ >�����@ >�����@ >�������@ >�����@

West Bengal ����� ������ ������ ������� ������>�����@ >������@ >������@ >������@ >�����@

Total ����� ������ ������ ������� �����S.D. overall >�����@ >������@ >������@ >������@ >�����@S.D. between >�����@ >������@ >������@ >������@ >�����@S.D. within >�����@ >������@ >������@ >������@ >�����@

Table A-5: Summary of Main Variables (1965-1992)

Standard Deviations in parentheses.

5;

Variable Levels Differences

Log Per Capita 0.99 15.35Income

Male Secondary 2.23 9.44School Enrolment

Female Secondary 5.52 6.94School Enrolment

Infant Mortality 3.82 13.00Rate

Physical Infra- 1.39 13.00structure (PC)

Table A-6: Panel Data Unit Root Tests

Notes: 5% critical value based on Im, Pesaran & Shin (1997), table 3, between 3.63 and 3.73 (approx.)

Sample period is 1965-1992.Jammu & Kashmir is omitted from calculations.

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