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This study examines the effects of Education Expenditure profitability on Economics Growth through the time series data of Pakistan.
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
5/18/2013
Abstract This study examines the effects of Education Expenditure & Human Capital profitability on Economics Growth. The education plays a vital role in enhancing economic growth by increasing productivity. It is one of the important elements of human capital formation. The study aims to examine the impact of education on economic growth of Pakistan based on an econometric model. To test the relationship between educational expenditure and economic growth, time series data has been used for the period of 1970-2010 for econometric analysis. The empirical results reveal that there is no relationship between the two factors in short-run. However, in long run a combination of several factors, including Education contribute towards economic growth. The results have been tested for heteroscedasticity, multicollinearity and autocorrelation for validation purposes. The study may be useful for educational sector for policy making and human capital formation to augment economic growth in Pakistan.
Keywords: Educational expenditure, Gross fixed capital formation, economic growth, gross
domestic product, human capital.
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
1. Introduction:
Education is a key to the socio-economic development of a country. It plays a vital role in building human capabilities and accelerates economic growth through knowledge, skills and creative strength of a society. The positive outcomes of education include reduction in poverty and inequality, improvement in health status and good government in implementation of socio-economic policies. It takes little analysis to see that education levels differ dramatically between developing and developed countries. Building upon several decades of thought about human capital and centuries of general attention to education in the more advanced countries it is natural to believe that a productive development strategy would be to raise the schooling levels of the population. And, indeed, this is exactly the approach of the Education for All initiative and a central element of the millennium development goals. We have concluded the result from the 10 research based on articles of the different countries. Mostly results shows that there is a significant positive relationship in between education and GDP of the country. The statistical hypothesis tests proved it, that education impact direct proportional on GDP. When the level of education increase, GDP will also be increase on the same direction. For over two decades, the Pakistani economy has been growing on average at the very respectable rate of about 5 percent per year, although this rate of growth has been comparable to that of other low- and middle-income countries. But unfortunately it has been significantly below the growth rates experienced by countries in South Asia such as Malaysia, Singapore, and Thailand. Illustration thought Figure 1 Economic Growth and Education.
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan. This figure shows that development of per capita GDP over the time period 1970 2004 in a sample low and middle income countries of South Asia. In the past few years, Pakistani growth has been accelerated; it has started catch up with the courtiers in Southeast Asia. Pakistan has been low compared to other South Asian and Southeast Asian countries. And while these numbers are a little dated, the overall picture is unlikely to have changed much in recent years. Since there is evidence in these literatures of a link between human capital and economic growth, this would imply that investing more in human capital could help Pakistan maintain the high rates of economic growth that is has recently been experiencing. Indeed, with growth accelerating, businessmen increasingly list a shortage of skilled labor as a constraint to further expansion. Policy-makers in Pakistan recognize this constraint and accordingly have attached great importance to strengthening education.
The link between investing in human capital and economic growth matters for an additional reason. A large part of the worlds population continues to live in poverty, and the focus of economic researchers and policy-makers has increasingly shifted toward designing policies that benefit the poor. There is widespread agreement that economic growth is necessary to help reduce poverty, but that growth by itself is not sufficient. Pakistan is a good example of this, as despite the relatively high growth rates, its social development is weak and poverty remains widespread, with about an estimated 30 percent of the population living in poverty. Investing in human capital, by creating a more productive work force, will lead to higher future growth and incomes. And higher social spending on education and health care can also benefit the poor directly by improving their current living conditions, as well as their future prospects.
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan. The paper is structured as follow. Section II will review selectively the recent literatures on economic growth, including findings regarding the importance of the quality of human capital. Following this, Section III presents the results of an econometric analysis of growth in a large group of low- and middleincome countries time series data during 19802005, adding a number of education and health indicators to more conventional factors explaining growth, such as macroeconomic policies, initial income levels, and institutional quality. In Further describes how Pakistan performed relative to the overall sample and to countries in South Asia and Southeast Asia in particular. Based on these results, the concluding section will offer some suggestions as to how Pakistan could maintain higher rates of economic growth into the future.
2. Review of Literature:
Studies confirming a positive relationship between education expenditure and economic growth have been made by Jorgenson and Fraumeni (1992), Aziz, Khan and Aziz (2008), Jung and Thorbecka (2001) and Ogujiuba and Adeniyi (2005). In another finding, Lin (2004) found that higher education played a strong role in Taiwan's economic growth (1% rise in higher education led to 0.35% rise in industrial output and 0.15% rise in agricultural output.).
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan. automatically through rivalry and self-interest, the whole being unite together by division of labor and the multiplex process of commute resulting there from. In Schultzs work of 1960, 1961, & 1962 was based on the earlier endogenous growth theories, for responding to the neoclassical growth theories .starting the work , highlighting the role of investing in man as a medium to increase whole factor productivity. The middle theories of growth emphasize at least three mechanisms through which education may affect economic growth. First, education can increase the human capital in the labor force that is the way to increases productivity and consequently transitional growth toward higher equilibrium level of output neoclassical growth theories, Mankiw et al. (1992) Second, education can the way to become greater or larger the containing power of the economy innovatively, and the new knowledge on new technologies, products, and processes promotes development as in theories of endogenous growth e.g., Lucas (1988), Romer (1990), Aghion and Howitt (1998). Third, education can facilitate the circulation and transference of knowledge needed to make progress new intelligence and to successfully implement new technologies devised by others, which again promotes economic growth. The new growth theories point to endogenize technical advancement by adding something to the same effect for a macro coming, emphasizing education as well as learning and R& for instance, the upper the extent of education of the work force the upper the general productivity of capital as a result of the additional educated area unit additional possible to initiate, and so have an effect on everyones productivity, for example, according to Lucas (1998) externality is created as the increased education of individuals raises not only their own productivity but also that of others with whom they interact so that total productivity increases as the average level of education rises is shown in alternative models(Perotti, 1993) The impact of education on the nature and growth of exports, which, in turn, affect the aggregate growth rate, is differently human development influences macro performance.. The education and skills of a developing countrys labor force predominance the creation of its broker boon and consequently the masterpiece of its trade. And literacy, numeracy, and discipline, it has been argued that even unskilled workers in a recent factory normally need these, which are no inheritable in first and lower secondary seminary (Wood, 1994).
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan. significant relation of inflation on economic growth while surprisingly the long run impact of poverty on school education is positive and significant and It is negative and significant in short run. (Islam, Wadud, & Tariq Islam, 2007)Examined The causal relationship between education and income (GDP) growth for Bangladesh by using annual time series data from year 1976 to 2003.Capital, labor, and education variables were considered to analysis impact on GDP (dependent). Multivariate approach Augmented Dickey-Fuller Unit Root test, Co-integration test and Granger causality test technique has been used. The result shows that there is a significant and direct proportional relationship in between GDP (dependent) to education. It appears that Bangladesh is in the second stage where income and education are helping each other to grow.
(Abdul Latif & Mohamed Yusof, 2007) A Latif & M Yusof - 2007 investigated the relationship between education and economic growth in Malaysia. In this paper, time series data for the period 1980 through 2005 for Malaysia will be utilized to determine to what extent education played an important role in economic growth. They analyses the relationship between independent educational variables and gross domestic product (GDP) (as the dependent variable).Data collected were analyzed using standard co-integration analysis to determine the relationship between the respective variables the study reveals intriguing results. The result of this paper suggests that there exists a co-integrating relationship between education as measured by enrollments rates in primary, secondary and higher education and the GDP per capita. (Khorasgani, 2008) Examined The effect of higher education on Irans economic growth by using time series data from year 1959 to 2005. Capital stock, labor force, and human capital variables were considered to analysis impact on economic growth of Iran. An autoregressive distributed lag (ARDL) model and co-integration technique has been used. The result shows that capital stock and labor force participation in economic growth of the country as few key variables that seem to effect the economic development of Pakistan along with education in the long-run. The results confirmed that higher education overall had a positive and significant effect on economic growth in Iran. The education factor plays a vital role to increase real output in GDP of the country. The hypothesis of this research shows that higher education has had a positively effect on the growth of the Iranian economy. ( K. Renuka & Alicia N., 2011) Evaluate the investment on education to Sri Lankas economic growth during the period 1959-2008. Education & economic growth are variables that should be considered. Correlation techniques have been used. The impact of education is assessed through a quality adjusted
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan. human capital stock measure. The returns to investment in education are positive but significantly lower than those found for other developing economies. The results indicate a need for an appropriate strategy to allocate resources on education to improve its returns to the economy. (Asghar, Awan, & Rehman, 2012) Investigated The role of human capital in terms of education and health on the economic growth of Pakistan. In this paper, annual time series data has been used for the period 1974 through 2009. They analyses the impact of human capital (independent) variable on dependent variable gross domestic product (GDP). Unit Root Tests, Vector Error Correction Model, and Co-integration techniques have been used. The results confirmed that a significant positive impact of human capital on economic growth and also have a proved that direct positive relationship exist between economic growth and both measures of human capital through co-integration test. The result of this paper suggests that there important implications particularly for policy makers that for achieving rapid economic growth, it is indispensable to give much emphasis to human capital. A BESKAYA & et al.(2010) aims to investigate the relationship between per capita school enrolments and per capita economic growth in Turkey over the period 1923-2007. Using the Autoregressive Distributed Lag (ARDL) approach to co-integration, The results also suggest that high school enrolments Grangercause higher education enrolments in the short run. The variance decomposition and impulse response analyses confirm the results of Granger causality tests. The study suggested that the implementation of economic growth. (Reza & Valeecha, 2012) examine the impact of education on economic growth of Pakistan based on an econometric model. To test the relationship between educational expenditure and economic growth, time series data has been used for the period of 1981-2010, combination of several factors such as Labor Force Participation Rate, Gross Fixed Capital Formation including Education expenditure as independent variables and Real GDP as dependent variable are analyzed by using OLS technique .The results reveal that there is no relationship between the two factors in short-run. However, in long run a combination of several factors, including Education contribute towards economic growth. They concluded that Government of Pakistan should encourage International Companies and Local Investors to grow their business in Pakistan that will leads to the Employment Opportunities and Economic growth of Pakistan. The study may be useful for educational sector for policy making and human capital formation to augment economic growth in Pakistan. eight-year mandatory primary education and recently establishing new universities in every single province in Turkey may positively contribute to the countrys long-run
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
3. Modeling Framework:
In accordance with the empirical studies, the regression model equation for Gross Domestic Product (GDP) is expressed as a function of gross fixed capital formation (CAP) and education expenditure (EDUEXP). Following equation is used to examine the effect of public expenditures on education and gross fixed capital formation by government on GDP.
GDP = + 1 (CAP) + 2 (EDUEXP) + e ------------------ (1) Where: Y = Real GDP EDUEXP = Government Expenditure on Education % of GDP CAP = Gross Fixed Capital Formation e = Error Correction Term
The above equation represents (EDUEXP) government expenditures on education which has positive relationship with GDP. And (CAP) represents gross fixed capital formation which has positive relationship with GDP. All the data sets used in this study from 1970 to 2010 are taken from World Bank.
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan. From the Table.4.1, the test results confirm the acceptance of the null hypothesis of unit root (whether or not trend is included in the regression), at level for each variable on the basis of the ADF test.1 First differencing of all the variables yields rejection of the null hypothesis on unit root (whether or not trend is included in the regression) for each variable.
Table 4.12 Stationarity Test Results Variables ADF test statistics I(0) I(1) C C 4.62 -2.24 -0.96 -3.78 -0.63 -3.91
Note: The critical values for ADF with constant (C) at 1%, 5% and 10% level of significance.
Based on these test results, it is, therefore, concluded that all series are first difference stationary [i.e. I (1)]. After doing stationary test we run the OLS by using the variables of capital structure, profitability and earning volatility at level that is shown in the table 4.2.
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Table 4.23 Long Run Determinants of GDP Variable C CAP EDUEXP Adj. R D.W Coefficient 1.70E+09 2.082701 30.73277 0.965075 0.797631 t-Statistic 0.786121 2.462535 3.963139 F-statistic Prob. Prob. 0.4367 0.0184 0.0003 553.6562 0.0000
To determine the relationship of considered variables, regression technique is applied. Results of the test are shown in Table 4.2. It is clear that there is a significant impact of EDUEXP and CAP on GDP. In the previous articles it is clear that the relationship between GDP and EDUEXP is depending on the long run relationship. The result of Adj. R indicates that the model is capturing 96% variation and the value of D.W is 0.797631 so, there was a chance of autocorrelation and we can check this through BreuschGodfrey Serial Correlation LM Test, and accepted our null hypothesis that is there is no autocorrelation is present in our model . The combination of one or more of these series may exhibit a long run relationship. We, confirm this through co-integration test. While the Engle-Granger single equation based cointegration test have been used frequently in the literature, it has its shortcomings.
The most important is that when there are more than two variables in the model, there can be more than one co-integrating vector.
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Table 4.34 Co-integration Test Results Max. Eigen value statistics 34.77648 23.77661 7.108517
We can check consistency of data through CUSUM and CUSUM of Squares test as shown in the graph 4.4.
20 15 10 5 0 -5 -10
-15
-0.2
-20 1975
4
1980
1985
1990
1995
2000
2005
2010
CUSUM
5% Significance
CUSUM of Squares
5% Significance
12
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
In CUSUM test the results within 2 standard deviations but CUSUM of Squares test shows fluctuation in 1981 till 2009 and outsides the 2 standard deviations.so, we can confirm this through chow breakpoint test year take 1998 as shown in the table 4.5. Table 4.55 Chow breakpoint Prob.F(3,25) 0.0274 F-statistics 3.429096 In table 4.5 we can check the consistency of beta through Chow breakpoint test by taking the year 1998 and the prob. value that is less than 0.1which means that there is a change in coefficient before and after 1998 and we can reject our hypothesis. After inserting effect of Nuclear Test in 1998. Table 4.66 OLS Test of LOG Variables Variables Coefficient C 4.4647424 LOG(CAP) 0.674704 LOG(EDUEXP) 0.229716 Prob.F(3,24) 0.000 t-Statistic 8.528080 6.318972 2.314363 R Prob. 0.000 0.000 0.026 0.987
5. Causality Analysis:
The direction of causality between GDP, gross fixed capital formation and education expenditure volatility remain unspecified. One mode of dealing with such an issue is to find out
5 6
13
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
the direction of causality using Granger causality method. The usual Granger causality leads to spurious regression results unless the variables in level are co-integrated. Also Granger causality deals with bivariate regression model.
Table 5.17 Causality Test Result Dependent Variables GDP CAP EDUEXP
The results of Granger causality test based on Toda and Yamamoto procedure are reported in Table 5.1. The values in parentheses are probability values while rests of the estimates are F-statistics. We accept our hypothesis: GDP does not Granger Cause CAP because of the prob. value that is 0.2719 and as well as, we accept our hypothesis CAP does not Granger Cause GDP because of the prob. value that is 0.4453. (No-Causality)
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
We reject our hypothesis: GDP does not Granger Cause EDUEXP because of the prob. value that is 0.0091 and we also reject our hypothesis EDUEXP does not Granger Cause GDP because of the prob. value that is 0.0224. (bi-directional causality) We accept our hypothesis: EDUEXP does not Granger Cause CAP because of the prob value that is 0.1410, but we reject our hypothesis CAP does not Granger Cause EDUEXP because of the prob.value that is 0.0012. (Uni-directional causality)
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
upon economic growth of the country as well as the manner in which the income of the country is distributed. The CUSUM and CUSUM Square tests confirm that the model is statistically stable and no structural break found in model. The results of Toda Yamamoto Augmented Granger Causality Tests confirm the bidirectional causality between education and economic growth. Physical capital is causing each of the economic growth, poverty and education. The effect of education is more on economic growth rather than the effect of Capital Formation on economic growth. Physical capital seems to a very helpful variable in explaining the education, economic growth and poverty linkages. On the basis of the findings of the study, it is recommended that the government and other Growth in Pakistan must be translated into education enhancement and poverty reduction activities. Growth and education that generates income and employment for the poor of the country can be critical for poverty reduction. Government should also focus on the quantity and quality of education that, in turn, leads to more researches in the country. It is also recommended that the linkages among education, capital formation and economic growth may further be explored and generalized by including other macroeconomic variables other than physical capital. Poverty reduction and education enhancing strategies must be adopted to accelerate economic growth of the country
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Appendix A
1. OLS Table:
Dependent Variable: GDP Method: Least Squares Date: 05/06/13 Time: 03:25 Sample: 1970 2010 Included observations: 41 Variable C CAP EDUEXP R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient 1.70E+09 2.082701 30.73277 0.966821 0.965075 8.48E+09 2.73E+21 -993.9160 553.6562 0.000000 Std. Error 2.16E+09 0.845755 7.754655 t-Statistic 0.786121 2.462535 3.963139 Prob. 0.4367 0.0184 0.0003 5.54E+10 4.54E+10 48.63005 48.75543 48.67571 0.797631
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Dependent Variable: LOG(GDP) Method: Least Squares Date: 05/15/13 Time: 06:06 Sample: 1970 2010 Included observations: 41 Variable C LOG(CAP) LOG(EDUEXP) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient 4.467424 0.674704 0.229716 0.987052 0.986370 0.102616 0.400140 36.72852 1448.359 0.000000 Std. Error 0.523849 0.106774 0.099257 t-Statistic 8.528080 6.318972 2.314363 Prob. 0.0000 0.0000 0.0261 24.39798 0.878957 -1.645293 -1.519910 -1.599636 0.399845
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
18
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Test Equation: Dependent Variable: RESID Method: Least Squares Date: 05/06/13 Time: 19:31 Sample: 1970 2010 Included observations: 41 Presample missing value lagged residuals set to zero. Variable C CAP EDUEXP RESID(-1) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient 0.027788 -1.57E-11 1.07E-10 0.805829 0.632192 0.602370 0.209252 1.620089 8.060880 21.19865 0.000000 Std. Error 0.053379 2.10E-11 1.92E-10 0.101048 t-Statistic 0.520588 -0.750382 0.557093 7.974708 Prob. 0.6058 0.4578 0.5808 0.0000 2.49E-16 0.331840 -0.198092 -0.030914 -0.137215 1.521247
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
19
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter.
From the above table we take the value of coefficient (row) =0.787708. The Prob. Value = 0.0000 is also significant. Thought this row value = 0.787708. We will generate new variables for our model. Details following below: 1. TLGDP=LGDP-(0.787708)*LGDP(-1) 2. TCAP=CAP-(0.787708)*CAP(-1) 3. TEDUEXP=EDUEXP-(0.787708)*EDUEXP(-1)
Transpose
Dependent Variable: TLGDP Method: Least Squares Date: 05/06/13 Time: 20:01 Sample (adjusted): 1971 2010 Included observations: 40 after adjustments Variable C TCAP TEDUEXP R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Coefficient 5.080043 2.49E-11 3.42E-10 0.533825 0.508626 0.149764 0.829884 20.74943 21.18465 Std. Error 0.035181 2.30E-11 2.22E-10 t-Statistic 144.3989 1.085246 1.536127 Prob. 0.0000 0.2848 0.1330 5.243242 0.213650 -0.887471 -0.760805 -0.841673 0.993155
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
20
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Prob(F-statistic) 0.000001
Test Equation: Dependent Variable: RESID Method: Least Squares Date: 05/06/13 Time: 20:06 Sample: 1971 2010 Included observations: 40 Presample missing value lagged residuals set to zero. Variable C TCAP TEDUEXP RESID(-1) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient 0.010949 -9.79E-12 5.78E-11 0.504461 0.222652 0.157873 0.133864 0.645109 25.78676 3.437097 0.026880 Std. Error 0.031630 2.08E-11 2.00E-10 0.157098 t-Statistic 0.346150 -0.471404 0.289813 3.211120 Prob. 0.7312 0.6402 0.7736 0.0028 1.05E-15 0.145874 -1.089338 -0.920450 -1.028274 1.839955
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
21
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter.
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
22
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Breusch-Godfrey Serial Correlation LM Test: F-statistic Obs*R-squared 0.211703 0.234480 Prob. F(1,35) Prob. Chi-Square(1) 0.6483 0.6282
Test Equation: Dependent Variable: RESID Method: Least Squares Date: 05/06/13 Time: 20:17 Sample: 1972 2010 Included observations: 39 Presample missing value lagged residuals set to zero. Variable C TTCAP TTEDUEXP RESID(-1) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient 0.001031 -1.41E-12 7.27E-12 0.080161 0.006012 -0.079187 0.126680 0.561675 27.34907 0.070568 0.975291 Std. Error 0.026286 1.93E-11 1.89E-10 0.174220 t-Statistic 0.039235 -0.072862 0.038412 0.460112 Prob. 0.9689 0.9423 0.9696 0.6483 -6.50E-16 0.121944 -1.197388 -1.026767 -1.136171 1.824084
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
23
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
3. Heteroskedasticity Test:
Heteroskedasticity Test: White F-statistic Obs*R-squared Scaled explained SS 2.805197 11.72981 10.88709 Prob. F(5,35) Prob. Chi-Square(5) Prob. Chi-Square(5) 0.0312 0.0387 0.0537
Test Equation: Dependent Variable: RESID^2 Method: Least Squares Date: 05/06/13 Time: 21:50 Sample: 1970 2010 Included observations: 41 Variable C CAP CAP^2 CAP*EDUEXP EDUEXP EDUEXP^2 R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient 0.210436 1.29E-11 -5.59E-21 9.47E-20 -3.25E-10 -3.27E-19 0.286093 0.184106 0.144424 0.730037 24.40227 2.805197 0.031167 Std. Error 0.054435 5.39E-11 7.64E-21 1.50E-19 4.61E-10 7.49E-19 t-Statistic 3.865802 0.239844 -0.731064 0.629349 -0.705478 -0.436131 Prob. 0.0005 0.8119 0.4696 0.5332 0.4852 0.6654 0.107432 0.159890 -0.897672 -0.646905 -0.806356 1.183937
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
24
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
CUSUM graph
20 15 10 5 0 -5 -10 -15 -20 1975 1980 1985 1990 1995 2000 2005 2010
CUSUM
5% Significance
CUSUM of Squares
5% Significance
25
The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
ADF TEST AT LEVEL FOR GDP
Null Hypothesis: GDP has a unit root Exogenous: Constant Lag Length: 0 (Automatic - based on AIC, maxlag=1) t-Statistic Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level *MacKinnon (1996) one-sided p-values. 4.620441 -3.605593 -2.936942 -2.606857 Prob.* 1.0000
ADF TEST AT 1
ST
Null Hypothesis: D(GDP) has a unit root Exogenous: Constant Lag Length: 1 (Automatic - based on AIC, maxlag=1) t-Statistic Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level *MacKinnon (1996) one-sided p-values. -2.240239 -3.615588 -2.941145 -2.609066 Prob.* 0.1961
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Null Hypothesis: EDUEXP has a unit root Exogenous: Constant Lag Length: 1 (Automatic - based on AIC, maxlag=1) t-Statistic Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level *MacKinnon (1996) one-sided p-values. -0.634802 -3.610453 -2.938987 -2.607932 Prob.* 0.8510
ADF TEST AT 1
ST
Null Hypothesis: D(EDUEXP) has a unit root Exogenous: Constant Lag Length: 0 (Automatic - based on AIC, maxlag=1) t-Statistic Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level *MacKinnon (1996) one-sided p-values. -3.910180 -3.610453 -2.938987 -2.607932 Prob.* 0.0045
Null Hypothesis: CAP has a unit root Exogenous: Constant Lag Length: 1 (Automatic - based on AIC, maxlag=1) t-Statistic Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level *MacKinnon (1996) one-sided p-values. -0.966666 -3.610453 -2.938987 -2.607932 Prob.* 0.7556
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
ADF TEST AT 1
ST
Null Hypothesis: D(CAP) has a unit root Exogenous: Constant Lag Length: 0 (Automatic - based on AIC, maxlag=1) t-Statistic Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level *MacKinnon (1996) one-sided p-values. -3.788543 -3.610453 -2.938987 -2.607932 Prob.* 0.0063
5. Co-integration Test:
Date: 05/06/13 Time: 20:32 Sample: 1970 2010 Included observations: 39 Series: GDP CAP EDUEXP Lags interval: 1 to 1 Selected (0.05 level*) Number of Cointegrating Relations by Model Data Trend: Test Type Trace Max-Eig None No Intercept No Trend 2 2 None Intercept No Trend 2 2 Linear Intercept No Trend 2 2 Linear Intercept Trend 2 2 Quadratic Intercept Trend 3 3
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Rank and Model Data Trend: Rank or No. of CEs None No Intercept No Trend Log Likelihood by Rank (rows) and Model (columns) -2557.602 -2533.349 -2522.699 -2522.272 Akaike Information Criteria by Rank (rows) and Model (columns) 131.6206 130.6845 130.4461 130.7319 Schwarz Criteria by Rank (rows) and Model (columns) 132.0045 131.3244* 131.3419 131.8836 None Intercept No Trend Linear Intercept No Trend Linear Intercept Trend Quadratic Intercept Trend
0 1 2 3
0 1 2 3
0 1 2 3
Eigenvalue 0.599552
Prob.** 0.0000
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
At most 1 * At most 2 * 0.465113 0.170611 30.88513 7.108517 18.39771 3.841466 0.0005 0.0077
Trace test indicates 3 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegration Rank Test (Maximum Eigenvalue) Hypothesized No. of CE(s) None * At most 1 * At most 2 * Max-Eigen Statistic 34.77648 23.77661 7.108517 0.05 Critical Value 24.25202 17.14769 3.841466
Max-eigenvalue test indicates 3 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values
Dependent Variable: LGDP Method: Least Squares Date: 05/06/13 Time: 23:17 Sample: 1970 2010 Included observations: 41 Variable C LOG(CAP) LOG(EDUEXP) R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient 4.467424 0.674704 0.229716 0.987052 0.986370 0.102616 0.400140 36.72852 1448.359 0.000000 Std. Error 0.523849 0.106774 0.099257 t-Statistic 8.528080 6.318972 2.314363 Prob. 0.0000 0.0000 0.0261 24.39798 0.878957 -1.645293 -1.519910 -1.599636 0.399845
Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
6)
Pairwise Granger Causality Tests Date: 05/08/13 Time: 17:08 Sample: 1970 2010 Lags: 1 Null Hypothesis: CAP does not Granger Cause GDP GDP does not Granger Cause CAP EDUEXP does not Granger Cause GDP GDP does not Granger Cause EDUEXP EDUEXP does not Granger Cause CAP CAP does not Granger Cause EDUEXP Obs 40 F-Statistic 0.59515 1.24383 5.67604 7.57276 2.26311 12.3888 Prob. 0.4453 0.2719 0.0224 0.0091 0.1410 0.0012
40
40
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Effects Specification S.D. Cross-section random Period random Idiosyncratic random Weighted Statistics R-squared Adjusted R-squared S.E. of regression F-statistic Prob(F-statistic) 0.994984 0.994901 1.85E+10 12000.81 0.000000 Mean dependent var S.D. dependent var Sum squared resid Durbin-Watson stat 1.32E+11 2.59E+11 4.13E+22 0.455658 2.06E+09 0.000000 1.62E+10 Rho 0.0158 0.0000 0.9842
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
Hausman Test:
Correlated Random Effects - Hausman Test Equation: Untitled Test cross-section and period random effects Chi-Sq. Statistic 0.000000 0.000000 19.030917
Test Summary Cross-section random Period random Cross-section and period random
Chi-Sq. d.f. 2 2 2
* Cross-section test variance is invalid. Hausman statistic set to zero. * Period test variance is invalid. Hausman statistic set to zero. ** WARNING: estimated period random effects variance is zero. Cross-section random effects test comparisons: Variable CAP EDUEXP Fixed 1.766465 13.035078 Random 1.443769 17.062921 Var(Diff.) 0.004047 0.784478 Prob. 0.0000 0.0000
Dependent Variable: GDP Method: Panel Least Squares Date: 05/08/13 Time: 02:14 Sample: 1980 2010 Periods included: 31 Cross-sections included: 4 Total panel (balanced) observations: 124 Variable C CAP EDUEXP Coefficient 2.23E+10 1.698747 13.43582 Std. Error 2.55E+09 0.126735 1.418477 t-Statistic 8.770649 13.40388 9.472007 Prob. 0.0000 0.0000 0.0000
Effects Specification Cross-section fixed (dummy variables) Period fixed (dummy variables) R-squared Adjusted R-squared 0.997691 0.996773 Mean dependent var S.D. dependent var 1.62E+11 2.86E+11
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) 1.62E+10 2.31E+22 -3069.852 1086.603 0.000000 Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat 50.09439 50.91318 50.42700 0.457235
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
3) CAP AT LEVEL:
Null Hypothesis: Unit root (individual unit root process) Series: CAP Date: 05/08/13 Time: 15:29 Sample: 1980 2010 Exogenous variables: Individual effects User-specified lags: 1 Total (balanced) observations: 116 Cross-sections included: 4 Method Im, Pesaran and Shin W-stat Statistic 7.9122 2 Prob.** 1.0000
Null Hypothesis: Unit root (individual unit root process) Series: D(CAP) Date: 05/08/13 Time: 15:30 Sample: 1980 2010 Exogenous variables: Individual effects User-specified lags: 1 Total (balanced) observations: 112 Cross-sections included: 4 Method Im, Pesaran and Shin W-stat Statistic 0.52650 Prob.** 0.2993
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
6) EDUEXP AT LEVEL:
Null Hypothesis: Unit root (individual unit root process) Series: EDUEXP Date: 05/08/13 Time: 15:34 Sample: 1980 2010 Exogenous variables: Individual effects User-specified lags: 1 Total (balanced) observations: 116 Cross-sections included: 4 Method Im, Pesaran and Shin W-stat Statistic 7.6518 9 Prob.** 1.0000
Null Hypothesis: Unit root (individual unit root process) Series: D(EDUEXP) Date: 05/08/13 Time: 15:34 Sample: 1980 2010 Exogenous variables: Individual effects User-specified lags: 1 Total (balanced) observations: 112 Cross-sections included: 4 Method Im, Pesaran and Shin W-stat Statistic 2.29292 Prob.** 0.0109
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The Impact of Education Expenditures on Economic Growth Time series Evidence from Pakistan.
7. References:
Bibliography
K. Renuka, G., & Alicia N., R. (2011). The impact of education investment on Sri Lankan economic growth. SriLanka: Pergamon. Abdul Latif, N., & Mohamed Yusof, N. (2007). The relationship between education and economic growth in Malaysia. Malaysia. Afzal, M., Malik, M. E., Begum, I., Sarwar, K., & Fatima, H. (2011). Relationship among Education, Poverty and Economic Growth in Pakistan: An Econometric Analysis. Lahore, Pakistan: Journal of Elementary Education Vol.22, No. 1 pp.23-45. Asghar, N., Awan, A., & Rehman, H. u. (2012). Human Capital and Economic Growth in Pakistan: A Cointegration and Causality Analysis Vol. 4, No. 4; April 2012. Lahore, Pakistan: International Journal of Economics and Finance. BESKAYA, A., & et, &. a. (2010). THE IMPACT OD EDUCATION ON ECONOMIC GROWTH IN TURKEY. Turkey: Suleyman Demirel Univeristy The Journal of Faculty of Economices and Administrative. Islam, T. S., Wadud, M. A., & Tariq Islam, Q. B. (2007). "Relationship between education and GDP growth: a mutivariate causality analysis for Bangladesh." Economics Bulletin, Vol. 3, No. 35 pp. 1-7. Bangladesh. Kakar, Z. K., Khilji, D. A., & Khan, M. J. (2011). Relationship between Education and Economic Growth in Pakistan. Islamabad,Pakistan: Journal of International Academic Research (2011) Vol.11, No.1. Khorasgani, M. F. (2008). "Higher education development and economic growth in Iran", Education, Business and Society: Contemporary Middle Eastern Issues, Vol. 1 Iss: 3, pp.162 - 174. Isfahan, Iran: Emerald Group Publishing Limited. Reza, A., & Valeecha, S. (2012). Impact of Education on Economic Growth of PakistanEconometric Analysis. Karachi,Pakistan: IOSR Journal of Business and Management (IOSR-JBM) ,ISSN: 2278487X. Volume 5, Issue 4 (Nov. - Dec. 2012), PP 20-27.
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