Many researchers have attempted to
examine the effect of government expenditure on economic growth. For instance,
Donald N.B (1993) investigated the differential effects of various forms of
expenditures on economic growth for a sample of 58 countries. Their findings
indicated that government expenditures on education and defense have positive
influence on economic growth, while expenditure on welfare has insignificant
negative impact on economic growth.
Niloy B, (2003) used a disaggregated
approach to investigate the impact of public expenditure on economic growth for
30 developing countries in 1970s and 1980s. The authors confirmed that
government capital expenditure in GDP has a significant positive association
with economic growth, but the share of government current expenditure in GDP
was shown to be insignificant in explaining economic growth. At the sectoral
level, government investment and expenditure on education are the only
variables that had significant effect on economic growth, especially when
budget constraint and omitted variables are included.
The causal relationship between
educational expenditures and school enrolment continues to attract the
attention of many. However, despite decades of intensive study, there is no
general consensus regarding the effectiveness of monetary educational inputs
for student outcomes (Anyanwu, 1998). In particular, papers that summarize the
debate on the effects of public education expenditures often advocate
conflicting views. For example, Card and Krueger (1996), Greenwald et al.
(1996), and Krueger (2003) are in favour of the effectiveness of public
education expenditures; Betts (1996), and Hanushek (1986, 1997, 2003), and
Al-Samarrai (2003, 2006) cast doubt on the conclusion of these researchers,
with the latter asserting that education expenditures negatively and
significantly affect educational access and performance.
In the mid-1990s, a number of studies
have investigated the effectiveness of public spending in education such as
enrolment rates and other outcome indicators (Anand and Ravallion, 1993;
Appleton et.al.1996; Filmer and Pritchett, 1997; Mingat and Tan, 1998;
Gupta et.al., 2002; Baldacci et.al., 2004; among others). The
results of these cross country regressions are mixed. Based on cross-sectional
data for developing countries, Baldacci et al. (2003) and Gupta et al. (2002)
find that social spending is an important determinant of education outcomes.
These studies find that the effect of social spending on education outcomes is
stronger in cross-sectional samples than when the time dimension is also added.
They also find that education spending has a greater effect on social
indicators than health outlays. The positive effect of social spending on
social indicators is also supported by Anand and Ravallion (1993),
Psacharopoulos (1994), Hojman (1996), Bidani and Ravallion (1997), Lopes 2002),
and Psacharopoulos and Patrinos (2002).
However, after correcting for quality,
Gallagher (1993) finds that public spending has a positive impact on
educational attainment. A similar analysis at the state level in India has been
carried out by Kaur and Misra (2003). For 15 non-special category states, their
empirical findings from a panel data analysis of social sector expenditure and
attainment indicates that public expenditure on education has been more
productive as compared to health, and this relationship is stronger for
relatively poorer states.
At the same time, a number of studies
have found insignificant or very weak linkages between public education outlays
and education indicators ((Noss (1991), Mingat and Tan (1992 and 1998), and
Flug, Spilimbergo, and Wachtenheim (1998)). Other variables such as per capita
income, urbanization, demographic profile as well as income inequality also
turn out to be statistically significant in cross-country regressions. Anand
and Ravallion’s (1993) empirical results indicated that there was no
significant relationship between education outcomes and public spending on
education.
McMahon (1999) finds a negative and
significant relationship between per pupil expenditures and the primary gross
enrolment rate, and a positive and significant impact of total education
expenditure as a proportion of GNP. The results of the McMahon study suggest
that increasing primary education expenditure while holding per pupil
expenditures constant, has a positive and significant impact on the primary
gross enrolment rate. However, this study does not include income per capita as
a separate explanatory variable, and it may be the case that these resource
variables are proxying for income per capita. The Colclough with Lewin (1993)
study includes an income per capita variable, and finds that expenditure as a
proportion of GNP is not significant when entered separately.
The relationship between educational outcomes
and resources thus varies across studies, and where resources are statistically
significant the direction of the relationship is often counter-intuitive. This
cross-country evidence mirrors the micro-based evidence, particularly from the
United States, which shows the lack of a systematic and consistent link between
resources and achievement (Hanushek, 1996). It has been argued, however, that
there may be a slightly stronger link between resources and achievement in
developing countries, because education systems in developing countries tend to
be so severely under-resourced compared to developed countries that marginal
increases in resourcing are likely to have much larger impacts on education
outcomes than in developed countries. Reviews of the micro-based literature do
suggest that a greater proportion of studies in developing countries report a
positive impact on education achievement than in developed countries (Hanushek,
1995, 1996).