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

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.