The Effect of Education Expenditure on Per Capita GDP in Developing Countries

Abstract

Is further public and private investment in education warranted in developing countries that is economically efficient? Does an increase in education expenditure, generate a positive impact on per capita GDP in developing countries? If so, is the impact different from that of Sub-Saharan African (SSA) countries? Education is one of the key factors of promoting economic growth because of its role in enhancing human capital thus productivity. However, adverse macroeconomic conditions and increased competition for scarce public funds have reduced governments’ capacity to expand education expenditure to improve labor productivity. I use the ‘system’ GMM estimator to estimate the effect of an increase in education expenditure on per capita GDP. The uniqueness of this paper is that unlike other studies where only one country or region is considered, this paper examines the impact of increased spending on education on per capita GDP in developing countries. The findings indicate that expansion in education expenditure in developing countries affects per per capita GDP positively, and the effect is not different from that of SSA countries.