Empirical Analysis of the Impact of Education on Economic Growth

Abstract

Education is a crucial factor for sustainable economic growth. Therefore, public expenditures on education are of great interest to both researchers and policy makers. The channels through which education affects economic growth differ according to the level of development of the country. This study aims to measure the impact of public expenditure on education for economic growth in North Macedonia. The data used are secondary data derived from the World Bank Indicators for the period 1917–2020. The econometric model employed in this study is an Instrumental Variable Two-Stage Least Square. The dependent variable in the model is Gross Domestic Product and the independent variables in the model are public expenditures on education, labor force participation rate, gross capital formation, unemployment, industry, wages, employment, information, and communication technology, and the instrumented variable is tertiary enrolment. This study suggests that a one-point increase in public expenditures on education will positively affect economic growth in the North Macedonia. The study also shows that a one-point increase in unemployment will increase economic growth and a one-point decrease in employment will increase economic growth in North Macedonia. These two results, which contradict the theoretical and empirical approaches, prove the mismatch between the supply and demand of real occupations in the labor market in North Macedonia.