Impact of Education Expenditure on Economic Growth: A Study of Selected ECO Countries

Abstract

The relation between spending on education and economic growth has been a popular subject of research, where education as a human capital is an important aspect of human capital in the long-term development. This paper looks at how education expenditure affects the economic growth of some ECO nations from 1972 to 2014. Other macroeconomic variables like the participation of the labor force, household consumption, and foreign remittances are also factored in alongside education in order to have a holistic picture of their effects on growth. The secondary data has been used to analyze it, and the sources are reliable, such as the Pakistan survey, the WDI, and the SBP. The augmented Dickey-Fuller test was initially applied to test stationarity since time series data tend. Once the integration sequence of the variables had been verified, two sophisticated econometric tools were used, that is, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS). Such approaches are especially appropriate because they address the problems of endogeneity and serial correlation, giving superior estimates of both long-run and short-run relationships between education spending and economic growth. The results indicate that the positive and statistically significant effect of the expenditure on education on the economic growth is positive. It was also discovered that labor force participation has a positive influence on growth, implying that the higher the participation in productive work, the higher the economic output. Household final consumption spending and foreign remittances, on the other hand, harmed economic growth. Overuse lowers savings and investment, which are essential in long-term development. It is time that policymakers focus on investment in education, promote higher levels of participation in the labor market, and implement other policies to redirect remittances and consumption towards productive investments to achieve long-term growth.