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

Recurrently in the literature, we find that public spending on education has an ambiguous impact on economic growth. Using the World Bank’s World Development Indicators, we revisit an endogenous growth model of Blankenau et al. (2007), over the last thirty years. By integrating the fiscal impact on growth of public spending, we analyze the empirical relationship between public spending on education and economic development. We do not observe significant results among countries belonging to upper-middle and high-income groups. Using Data Envelopment Analysis à la Ji and Lee (2010), we compute a performance measure of public spending on education to generate human capital (measured through Expected Human Capital index from Lim et al. (2018) or Years of Schooling from Barro and Lee (2013)). Once we control for the performance of public spending, we find a positive and significant impact of increased spending on education. This is particularly the case in high performing countries. We then decompose public spending on education by level (primary, secondary and tertiary). We only find significant impact for primary education expenditure.