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Education Enrollment Level and Income Inequality: A Case of SAARC Economies

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Abstract

This study is based on the idea that education forms a quadratic relationship with the income inequality. To evaluate it for South Asian Association for Regional Cooperation (SAARC) countries, this study uses the panel data from 1990 to 2015. Long run panel data necessitated the use of panel co-integration approach, followed up with fully modified OLS model to generate long-run coefficients. The results depict that initially primary and secondary enrollment increases inequality while tertiary enrollment decreases it. However, after a certain threshold level of enrollment (76% for primary, 42% for secondary and 7% for tertiary), their effect reverses. Thus, it makes inverted U shape for primary and secondary enrollment and U shape for tertiary enrollment. Hence education shows diminishing marginal return effect. Only the countries of India, Sri Lanka, Maldives and Nepal in SAARC economies have high enough education enrollments to cause a negative effect on income inequality.

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Notes

  1. The Tunnel Effect—http://www2.warwick.ac.uk/fac/soc/economics/news/2013/4/tunneleffect/.

  2. Outlook Global Agenda 2015—Deepening Income Inequality. http://reports.weforum.org/outlook-global-agenda-2015/top-10-trends-of-2015/1-deepening-income-inequality/.

  3. Confirmed by Ravallion (2001) and Alderson and Nielsen (2002).

  4. Dependent variable showed significant cross sectional correlation.

  5. Mean of the dependent variable is significantly different across cross sections.

  6. Which is because of high kurtosis of the variables.

  7. Hence series have become time variant causing invalidity of simple OLS estimates (Gujarati 2009).

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Authors and Affiliations

  1. Department of Economics, University of Management and Technology, Lahore, Pakistan

    Noman Arshed & Samra Bukhari

  2. Center of Economic Research, Shandong University, **an, China

    Awais Anwar

  3. Department of Economics, Government College University, Faisalabad, Pakistan

    Nabeela Kousar

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  1. Noman Arshed
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Correspondence to Awais Anwar.

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Arshed, N., Anwar, A., Kousar, N. et al. Education Enrollment Level and Income Inequality: A Case of SAARC Economies. Soc Indic Res 140, 1211–1224 (2018). https://doi.org/10.1007/s11205-017-1824-9

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