Impact of Social Sector Public Expenditure on Economic Growth in India: A Cointegration Approach

Abstract

Public expenditure in the social sector acts as the foundation for economic growth by enhancing human capital, promoting inclusivity, and assuring the resilience of the economy. Based on this concept, this paper analyzes the impact of government spending in the social sector on economic growth in India and also analyses both its short and long run impacts on economic growth. In the present study the variables that are per capita Income, education, health, labor & employment, social welfare & nutrition, and water supply & housing expenditure are found to be non-stationary using Augmented dickey fuller test. All of the variables are integrated at first order [I (1)]  hence the study uses Johansen’s Co-integration Test for the annual time series data (1990-2024) to examine the long-run impact and Vector Error Correction Model (VECM) is used to study the short-term dynamics and long-term relationships among five heads of social sector that are relevant for economic development namely, education, health, labor & employment, social welfare & nutrition, and water supply & housing. The Present study finds long-run relationship between public expenditure in social sector and economic growth. In long-run education, health, labour & employment, and water supply & housing expenditure positively affect economic growth (PCI) and social welfare & nutrition has negative impact on economic growth. In the short run, education, healthcare and water supply & housing expenditure negatively impacted economic growth (PCI), but labour & employment and social welfare & nutrition positively impacted economic growth.