Human Capital Externalities in India. (First draft)

Human capital externalities play a central role in endogenous growth models. Many economists base their belief that Government intervention in provision of educations is essential, on those externalities. This paper tries to exploit the low levels of education and literacy rates in India, for measuring human capital externalities. Households' expenditures per capita are highly correlated with average education in their regions, even after controlling for HH own level of education and after controlling for regions ̄xed e®ect. These e®ects are much stronger for educated people, for not primary industries, for urban areas, and for women and older generations. These results are consistent with educated people being more in°uenced by their environment, and bene ̄t more from educated society. The results are also consistent with technological process increasing human capital externalities, andwith gender gap and age gap in environment