Economic growth and expenditure on health and nutrition: An examination of Co-Integration and causality behaviour among major Indian States

In this paper, an attempt has been made to examine long-run equilibrium and causality behaviour between expenditure on health and nutrition (NUT) vis-à-vis income among major Indian states, at both aggregated and disaggregated levels. The objective was to get useful policy input regarding significance of social sector consolidation towards realisation of economic growth. The analysis makes use of panel time series information (for 29 years: from 1985–1986 to 2013–2014) complied in respect of 17 major Indian states. Application of OLS-cusum test has pointed towards the absence of structural breaks in the aggregates, thus allowing for carrying out the pooled unit-root and co-integration analyses. As per the former analysis, various components of expenditure and income (on logarithmic scale) were seen, in general, to be integrated of order one. And, as per the cointegration analysis, expenditure on each of (i) medical, public health and family welfare and (ii) NUT, and income from each of (i) secondary sector, (ii) Tertiary1 sector and (iii) Tertiary-2 sector, possessed long-run equilibrium relationship. Among the co-integrating vectors, results from Granger's causality analysis revealed, in general, the presence of unidirectional causality running from income to expenditure. Thus, among the Indian states, the growth-led social-sector consolidation (in consonance with Wagner's hypothesis) implies the need to adopt suitable measures so as to promote the pace of economic growth; expenditure on health and NUT would possibly be governed endogenously.