Multivariate Causality Between GDP Growth, Health Expenditure, Unemployment, and Inflation in India
Authors
-
J. Benila Pearl
Research Scholar (Corresponding Author), Department of Management Studies, Madurai Kamaraj University, Palkalai Nagar, Madurai - 625 021, Tamil Nadu
https://orcid.org/0000-0003-1777-2966
- M. Palanivel Rajan Assistant Professor, Department of Management Studies, Madurai Kamaraj University, Palkalai Nagar, Madurai - 625 021, Tamil Nadu
DOI:
https://doi.org/10.17010/aijer/2025/v14i4/174481Keywords:
health expenditure, unemployment, inflation, GDP growth, cointegration, Granger causality test.JEL Classification Codes : C32, E24, E31, H51
Publication Chronology: Paper Submission Date : June 2, 2025 ; Paper sent back for Revision : November 20, 2025 ; Paper Acceptance Date : November 30, 2025
Abstract
Purpose : India, as one of the most rapidly expanding economies globally, with a gross domestic product (GDP) of over $2.7 trillion, faced various challenges due to high inflation, unemployment, and COVID - 19 impact. Understanding interrelationships among macroeconomic variables, such as health expenditure, unemployment, inflation, and GDP growth rate, was necessary to develop efficient economic plans.
Methodology : The study examined the dynamic causal relationship among the macroeconomic variables (economic growth, health expenditures, unemployment, and inflation) of the Indian economy during 1991–2020 using econometric techniques in a vector error correction model (VECM) framework. The unit root and Johansen Cointegration test were used to identify stationarity and long-run relationships, while short-run and long-run dynamics were analyzed through Granger causality, variance decomposition, and impulse response using EViews Software.
Findings : The cointegration test revealed that a long-term relationship existed among the variables. Granger causality demonstrated a unidirectional causal relationship from health expenditure to GDP growth, unemployment, and inflation in the short and long term; thereby supporting the health-led growth hypothesis for India. The variance decomposition identified that unemployment emerged as a dominant source of long-term fluctuation. IRF analysis revealed that the GDP growth rate had both negative and positive effects on unemployment.
Practical Implications : These findings suggested that polices targeting sustained health spending were crucial for economic growth. Policymakers need to focus on efforts toward restructuring the economy with coordinated employment, health, and macroeconomic policies for long-term economic stability and inclusive growth.
Originality : Unlike previous research, the present study incorporated four macroeconomic variables of the Indian economy, such as health expenditure, unemployment, inflation, and GDP growth rate, within a unified multivariate framework.
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