Education, public expenditure and economic growth under the prism of performance

Abstract

Recursively in the literature, public spending on education is found to have an ambiguous impact on economic growth. Using World Development Indicators from the World Bank, we revisit an endogenous growth model from Blankenau et al. (2007), over the last thirty years. Considering the fiscal effect, we analyse the empirical relationship between public spending on education and economic development. Despite having a positive and significant impact on the overall group of 65 countries belonging to upper-middle and high-income countries, our main results are not robust to subgroups , focusing on the economic development. Once we control for the performance of public expenditure, to effectively generate human capital, we find a positive and significant impact from increasing expenditure on education, in what we call "performing countries". Our results demonstrate that increasing spending on education cannot be growth enhancing without considering the prism of performance.