Abstract

This paper investigated the causal relationship among health expenditure, education expenditure and GDP for Bangladesh. First we present the extension form of the augmented Solow Growth model by including education expenditure and health expenditure as education and health capital. In our empirical study we used time series data for the period 1990 to 2009. From the ECM methodology we found that an including of health and education expenditure as an investment in health and education capital improve the significance of the coefficient of human and physical capital in the growth model for Bangladesh. Secondly, we find out the causal relationship among these variables by Var Granger Causality test. From the empirical study we found the existence of bidirectional causality from education expenditure to GDP and also from education expenditure to health expenditure and only unidirectional causality is obtained from health expenditure to GDP. This paper will provide a significant policy guideline to the policy maker.

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