Income Inequality and Education in South Asia: Empirical Investigation Under Persistence, Endogeneity and Heterogeneity

Abstract

This study empirical investigates the relationship between income inequality and education expansion that is, increasing average years of schooling and reducing inequality of schooling by taking a penal of South Asian countries over the period from five years interval from 1980 to 2015. South Asain economies are consistently studied in the inequality literature and world development report 2018 also focused on the issue of educational concerns and elaborated a high inequality of learning exist in South Asia. Arellano-Bond dynamic panel GMM estimation techniques are used by following exiting literature to address issues of persistence and endogeneity, we find a large, positive, statistically significant and stable relationship between average years of schooling and income inequality in South Asian economies. The relationship between income inequality and average years of schooling is positive, consistent with constant or increasing returns to additional years of schooling. Another positive and statistical significant relationship exists between educational cost and income inequality is small and not always statistically significant, we find a statistically significant negative between income inequality and younger cohorts. Statistical tests indicate that our dynamic estimators are consistent and that our identifying instruments are valid. Policy concerns suggest that education expansion will continue to be inequality reducing. This role will diminish as countries develop, but it could be enhanced through a stronger focus on reducing inequality in the quality of education.