Policy Alternatives for Accelerating Health & Educational Attainments of Children in India: An Analysis using Computable General Equilibrium Model

NO : WP-2024-002

AUTHOR : Runu Bhakta and A. Ganesh-Kumar

TITLE :  Policy Alternatives for Accelerating Health & Educational Attainments of Children in India: An Analysis using Computable General Equilibrium Model


Assessing the impact of alternative policy options on developmental goals relating to health and education remains an analytical challenge due to several reasons. Typically, the goals and their associated indicators are non-economic variables that are influenced by a multitude of factors at different levels (household, local, regional and national), and often rooted in different sectors of the economy. Further, these factors interact and influence each other in several ways that are often difficult to capture.
Typically, much of the literature use econometric methods to capture the impact of some micro- or sector specific government policy or programme after controlling for a set of control variables. Often the control variables are at a particular level (such as household demographic, socio-economic, and locational characteristics) and the influence of other factors at different levels (region or macro-level) are captured in a rudimentary manner or ignored completely. While this approach is useful to assess the impact of a single policy, a major shortcoming of this analytical framework is that it does not permit evaluation of policy alternatives and hence cannot provide an assessment of their opportunity costs.
One of the analytical frameworks extensively used in the economics literature to study trade and fiscal policy alternatives is the computable general equilibrium (CGE) model. CGE models inherently account for inter-sectoral and inter-agent linkages and are particularly suited to study policies that have multi-sectoral and/or multi-agent impact. Despite their inherent advantages on these counts, studies using CGE models to assess policy alternatives for achieving developmental targets are very few internationally. This is primarily because the development indicators are mostly non-economic variables whose relationship with other economic variables is not well understood.
In this paper, using India as a case, we demonstrate the use of CGE models to evaluate policy alternatives for achieving specific developmental targets relating to child health and education. We address the question “Which policy option would help India accelerate child health and education status to levels comparable to developed countries in the shortest possible time”. We proxy child health by infant mortality rate (IMR) and educational attainment by dropout rates (DOR) at the primary level. We specify a target value for IMR of 10 or less per thousand live births and DOR value less than 1 per cent are more or less, which are comparable with levels prevailing in developed countries.
Towards this, we first develop a recursively dynamic CGE model and augment it by (a) incorporating two simple econometrically estimated equations relating progress in water and sanitation access to public expenditure in these sectors; (b) bringing in the econometric relationship between public expenditure in the education sector and progress in adult education; (c) integrating the econometric relationships to capture the impact of public expenditure on child health and education, taking into account the progress in adult education and access to water and sanitation; and (d) developing a set of link equations to capture the relationship between adult education outcomes and composition of labour supply by education levels.
Through these additional equations, we capture the direct impact of improvements in adult education, water and sanitation on child health and child education and the direct impact of improvements in adult education on the supply of various types of labour force by education levels. The latter allows us to capture the feedback effects of public spending on education on the overall performance of the economy via labour market outcomes, and thus eventually on government fiscal position as well as households’ ability to afford health care and education.
Using this augmented recursively dynamic CGE model we simulate the following policy alternatives: (i) economic growth as the driver of progress in child health and education outcomes; (ii) additional public expenditure funded through public borrowings on (a) water and sanitation sector, (b) health sector, (c) education sector and (d) combined water, sanitation, health and education sectors.
The results lead us to suggest that increasing public expenditure on water and sanitation through recourse to public borrowing is the best performing scenario for accelerating child health and education attainment in the country among above mentioned policy alternatives. But, focusing attention on water and sanitation should not be at the cost of government expenditure on education and health.

Keywords: Child Health, Child Education, CGE, SAM, Fiscal Policies, Government Expenditure
JEL Code: C68, H51, H52, I18, I28, E16, E62

Weblink: http://www.igidr.ac.in/pdf/publication/WP-2024-002.pdf