Does Growth Need More Security or Human Capital?Experience from Two Asian Giants

This paper examines the impact of both productive and unproductive public expenditure on economic growth of two Asian giants, namely, India and China during the period 1980 to 2004. The unwarranted rise of military expenditure in south Asian sub-continent, particularly in India and China, and the creeping decline of public expenditure on education encourage us to examine the impact of these factors on real GDP. Nevertheless, we are also keen to know the growth led effects on expenditure patterns of these two countries. In this context, we have applied cointegration and VECM techniques to know the long run and causality relationships among the variables of interest. The empirical findings of the study suggest that both countries required better human capital than high security to foster higher real GDP. Further, it finds that military expenditure and human capital are influenced by higher levels of real GDP in these two countries.