HISTORY OF EDUCATION IN LAOS, WORKING PAPER SERIES NO.

CROSS-NATIONAL PATTERNS OF PUBLIC EXPENDITURE ON EDUCATION: SOME RESEARCH NOTES ON CONSTRAINTS AND CHOICES, WITH A FOCUS ON ASEAN PLUS 3

Richard Noonan & Vithanya Noonan Vientiane

2014-03-13

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CONTENTS
Contents .................................................................................................................................... i List of Figures ........................................................................................................................... i Glossary ...................................................................................................................................ii 1. INTRODUCTION.............................................................................................................. 1
A. Aim and Scope of this Paper ................................................................................................... 1 B. Data Sources and Limitations ................................................................................................. 1 C. Three Themes........................................................................................................................... 2

2. RESULTS ........................................................................................................................... 2
A. B. C. D. E. F. Some Univariate Distributions ............................................................................................... 2 Some Bivariate Distributions .................................................................................................. 5 Do Rich Countries Spend More on Education than Poor Countries? ................................ 5 Does Higher Education Expenditure Lead to Higher Growth Rates?.............................. 13 Interpretation of Results ....................................................................................................... 13 Future Research ..................................................................................................................... 19

Bibliography and Sources .................................................................................................... 19

LIST OF FIGURES
Figure 1: Mean GDP per Capita (International US Dollars), by Country .................................... 3 Figure 2: Mean Year-on-Year Growth Rate in GDP (%), by Country ......................................... 4 Figure 3: Expenditure on Education as Percent of GDP, by Country ........................................... 6 Figure 4: Expenditure on Education as % of Total Government Expenditure, by Country....... 7 Figure 5: Current as % of Total Public Education Expenditure, by Country .............................. 8 Figure 6: GDP Growth Rate as a Function of GDP/capita ............................................................. 9 Figure 7: GDP Growth Rate as a Function of GDP/capita, ASEAN Plus Three ........................ 10 Figure 8: Public Expenditure on Education as % GDP as a Function of GDP/capita ............... 11 Figure 9: Public Exp. on Education as % of Total Gov. Exp. as a Function of GDP/capita...... 12 Figure 10: Percent Current Education Expenditure and as a Function of GDP/capita............. 14 Figure 11: GDP Growth Rate as a Function of Education Expend. as % of GDP .................... 15 Figure 12: GDP Growth Rate as a Function of Education as % of Total Gov. Expend. ........... 16 Figure 13: GDP Growth Rate as a Function of Percent Education Expenditure Current ....... 17

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GLOSSARY
APT. ASEAN Plus Three. ASEAN. Association of Southeast Asian Nations. (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Viet Nam). ASEAN Plus Three. ASEAN plus China, Hong Kong SAR, Macao SAR, Japan, and Republic of Korea (treating Mainland China, Hong Kong SAR, and Macao SAR as one). GDP. Gross Domestic Product. GDP/c. Gross Domestic Product per capita, i.e., per person in the population. HRD. Human resource development. International [US] Dollar. Hypothetical unit of currency that has the same purchasing power that the US dollar has in the United States at a given point in time. It is widely used by economists to make comparisons between countries and over time. It is based on Purchasing Power Parity (PPP). PPP. Purchasing power parity. An estimate of the amount of money needed to purchase the same goods and services in two countries, and uses that information to calculate implicit exchange rates. SAR. Special Administrative Region. UIS. UNESCO Institute for Statistics.

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1. INTRODUCTION
A. AIM AND SCOPE OF THIS PAPER
1. Aim. The aim of this paper is to describe some recent cross-national patterns of aggregate public expenditure on education, and in particular to demonstrate the complexity of the interrelationships among the variables studied. 2. The study is purely exploratory and only touches the surface. Neither literature review nor theoretical base is presented. The context within which this study was conducted was international development cooperation. In that operating context simplifying assumptions are sometimes made about relationships between patterns of public educational expenditure and social and economic growth and development. This study does not attempt to analyze such relationships but by showing their complexity to establish that international patterns of aggregate public expenditure on education are marked by both constraints and choices, and to suggest that simplistic conclusions about appropriate levels of investment in education can be difficult to generalize. 3. Note on Statistics and Causation. As all research students learn in STATISTICS 101, Correlation does not imply causation. Correlation is merely a measure of the extent to which two (or more) variables co-relate, i.e., the extent to which cases high on one variable tend also to be high on another variable (positive correlation), or alternatively, cases high on one variable tend to be low on another variable (negative correlation). 4. Causation, by contrast, is a property of a theoretical model, which not only posits but also describes a causal mechanism. How does variable X causally influence variable Y? Unless such a mechanism is posited and described, the researcher enters a dense and dangerous epistemological jungle. This is not the time or place to explore that jungle, but the reader should just be cautioned: we are only looking to see if there is a relatively simple pattern of association. And absence of a simple pattern of relationship does not imply absence of more complex patterns of relationships. 5. Here we pose simple questions about the relationship between education (correlation) financing and economic outcomes of the form: Is there a simple, visible relationship between X and Y? These questions correspond to the null hypotheses: There is no relationship between X and Y. If we find such relationships, we are free to suggest possible underlying causal relations without maintaining that we have in any way established or proven these causal relations.

B. DATA SOURCES AND LIMITATIONS

6. Notes on the Data. The data used here were provided by the UNESCO Institute for Statistics (UIS). The data set covers the period 2001 2010, and the graphs are based on the country mean values over that period for all countries with more than two data points during the period. In the diagrams below, data are presented for all countries for which data are available. The data were downloaded September 27, 2012. 7. The data used here represent International US Dollars. The International Dollar is a hypothetical unit of currency that has the same purchasing power that the US dollar has in the United States at a given point in time. It is widely used by economists to make comparisons between countries and over time. It is based on purchasing power parity (PPP), which is
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an estimate of the amount of money would be needed to purchase the same goods and services in two countries, and uses that information to calculate implicit exchange rates. 8. Notes on the Countries. This study focuses on Laos and other countries included in ASEAN Plus Three (APT), namely Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam, plus China, Hong Kong SAR, Macao SAR, Japan, and the Republic of Korea. In some of the diagrams below tags are provided to indicate some or all of the APT countries for comparison. In some diagrams some tags are omitted because the data points are very close together.

C. THREE THEMES
9. This study explores (briefly and superficially) three themes. The literature surrounding education sector development projects often involves the implicit (rarely explicit) assumption that national level economic or other outcomes are influenced by variables related to education financing. We begin with univariate distributions (looking at one variable at a time) and then proceed to bivariate distributions (looking at two variables at a time). 10. This study is limited by the absence of data on private expenditure on education, which in some countries (both rich and poor) can be significant and could change the picture if evidence were available. Thus all references below to expenditure on education refer to public expenditure on education. 11. Theme 1: Public Financing of Education as Percent of GDP/capita. Do countries with higher Gross Domestic Product per capita (GDP/c, i.e., GDP per person in the population) tend to spend a larger proportion of the GDP on education? Do rich countries make more effort in supporting education than do poor countries? Do countries which spend more on education experience more rapid growth than countries which spend less? 12. Theme 2: Public Financing of Education as Percent of Government Spending. Do countries with higher Gross Domestic Product per capita tend to spend a larger proportion of their public budget on education? Again, do rich countries make more effort in supporting education than do poor countries? 13. Theme 3: Current Expenditure as Percent of Total Expenditure on Education . Finally, how do countries tend to balance current expenditure (teacher salaries, materials, regular repair and maintenance) and investment expenditure (construction of new education facilities, such as new schools or expansion of existing schools)?

2. RESULTS
A. SOME UNIVARIATE DISTRIBUTIONS
14. Some Economic Data. Figure 1 below displays the distribution of mean GDP/c for the 183 countries for which data are available on the GDP/c for the period 2001-2010. The countries are sorted from the highest GDP/c to the lowest. Laos is seen to be relatively low in the distribution, but not the lowest in ASEAN. Figure 2 below displays the mean year-onyear GDP growth rate for 193 countries. The mean growth rate is 4.4 percent, and the growth rate in Laos is seen to be substantially higher than the mean, with an average year-on-year growth rate of 7.2 percent over the period 2001-2010.
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Mean 2001-2010 (183 Countries)

Figure 1: Mean GDP per Capita (International US Dollars), by Country

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Mean 2001-2010 (193 Countries)

Figure 2: Mean Year-on-Year Growth Rate in GDP (%), by Country

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15. Some Education Data. Figure 3 below displays the distribution of 147 countries on public expenditure on education as a percent of GDP. The APT countries tend to bunch together toward the lower end of the distribution. Figure 4 below displays the distribution of 129 countries on public expenditure on education as a percent of total government expenditure. The APT countries are more widely spread over the distribution of education expenditure as a proportion of the total government budget than as a proportion of the GDP. In both of these distributions, Laos appears toward the lower end but is not the lowest country in the distribution. 16. Figure 5 below displays the distribution of 122 countries by proportion of total public education expenditure on education which goes to current expenditure, rather than investment expenditure. The APT countries are widely spread over the lower two-thirds of the distribution, indicating relatively high proportions allocated to investment expenditure. Laos appears at the end of the distribution it spent the lowest proportion of total education expenditure on current expenditure, 48.5 percent the only country to spend less than 50 percent on current expenditure.

B. SOME BIVARIATE DISTRIBUTIONS

17. Figure 6 below displays the relationship (or rather, lack thereof) between GDP/c and year-on-year GDP growth rate. The data points are widely scattered, although a slight tendency for poorer countries to have higher growth rates is visible. Laos, with a GDP/c of 1.83 thousand International Dollars and 7.2 percent GDP growth rate is shown in red at the far left, midway between 6 and 8. The logarithmic curve (commonly used by economists in analysis of such relationships) yields a squared correlation of only 0.04, which means that only 4 percent of the variance in year-on-year growth in GDP is explained (predicted) by variation in GDP/c. 18. A closer examination between GDP/c and year-on-year GDP growth rate focusing on the APT countries is shown in Figure 7 below. There the relationship is much clearer, although the pattern is disturbed by China, Macao SAR, which is a distinct outlier. For APT, the squared correlation is 0.22. For the ten ASEAN countries the relationship is much clearer, and the squared correlation is 0.55.

C. DO RICH COUNTRIES SPEND MORE ON EDUCATION THAN POOR COUNTRIES?

19. As seen in Figure 8 below, there is no clear and simple relationship between public expenditure on education as a proportion of GDP and GDP/c. Most countries, both rich and poor, tend to spend between around 3 and 6 percent of GDP on public education, with a mean of approximately 4.7 percent. There is a very slight tendency for richer countries to spend a larger portion of the GDP on education than poorer countries spend. The position of Laos is shown in red in the lower left corner. 20. Figure 9 below shows the opposite relationship between public expenditure on education as a proportion of total government expenditure and GDP/c. There is a slight tendency for poorer countries to spend a larger portion of the total government expenditure on education than rich countries spend. The position of Laos is shown in red in the lower left corner.
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Mean 2001-2010 (147 Countries)

Figure 3: Expenditure on Education as Percent of GDP, by Country

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Mean 2001-2010 (129 Countries)

Figure 4: Expenditure on Education as % of Total Government Expenditure, by Country

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Mean 2001-2010 (122 Countries)

Figure 5: Current as % of Total Public Education Expenditure, by Country

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Mean 2001-2010 (183 Countries)

Figure 6: GDP Growth Rate as a Function of GDP/capita

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Figure 7: GDP Growth Rate as a Function of GDP/capita, ASEAN Plus Three

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Mean 2001-2010 (139Countries)

Figure 8: Public Expenditure on Education as % GDP as a Function of GDP/capita

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Mean 2001-2010 (124 Countries)

Figure 9: Public Exp. on Education as % of Total Gov. Exp. as a Function of GDP/capita

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21. Figure 10 below displays a weak relationship between proportion of total public expenditure on education which goes to current expenditure and the GDP/c. There is a slight tendency for poorer countries to spend a lower proportion on current expenditure (and thus a higher proportion on investment) than richer countries. Laos is clearly visible with the lowest proportion of the total education budget allocated to current expenditure (compare with Figure 5 above).

D. DOES HIGHER EDUCATION EXPENDITURE LEAD TO HIGHER GROWTH RATES?

22. Figure 11 below displays GDP growth gate (%) and public expenditure on education as a proportion of GDP, 2001-2010 (145 countries). Although most countries tend to cluster in the middle range of both education expenditure as a proportion of GDP and year-on-year growth rate, the outliers make the pattern more easily visible. Countries which spend more heavily on education as a proportion of GDP tend to have lower growth rates. Laos is shown in red on the left edge of the central cluster with a growth rate between 5 and 10. 23. Figure 12 below displays GDP growth gate (%) and public expenditure on education as a proportion of total government expenditure (126 countries). Most countries tend to cluster in the middle range of both education expenditure as a proportion of total government expenditure and year-on-year growth rate. The two most extreme outliers in terms of growth rates both appear in the mid-range of education expenditure, approximately 16-17 percent of total government expenditure. The upper extreme is a growth rate of over 15 percent, and the lower extreme is negative. Laos is shown in red on the left part of the central cluster with a growth rate between 6 and 8. No trend line is added to the display because there is no visible trend the squared correlation is only 0.01.

E. INTERPRETATION OF RESULTS
24. Low but Normal Education Sector Expenditure. With respect to education spending, either as a proportion of the GDP or as a proportion of total government expenditure, Laos appears relatively low in the overall distribution but not the lowest or even the lowest among the APT countries. 25. A Pathological Pattern of Expenditure? Among the variables examined, Laos is on the extreme end in only one, namely the proportion of total education expenditure which goes to current expenditure. The data displayed represents the mean over the period 20012010, based on the four existing data points. Moreover a study covering the period 19902000 revealed similar results beginning in the mid-1990s (Noonan, 2001). It may be concluded that this situation is not just a fluke. It is a situation well known to those familiar with development cooperation in the education sector in Laos schools are built for which neither teachers nor textbooks are available. To what extent does this impact negatively or positively on economic development, specifically on GDP growth rates? 26. Some evidence is provided in Figure 13 below, which displays the relationship between proportion of the total education budget allocated to recurrent expenditure and yearon-year GDP growth.

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Mean 2001-2010 (113 Countries)

Figure 10: Percent Current Education Expenditure and as a Function of GDP/capita

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Mean 2001-2010 (145 Countries)

Figure 11: GDP Growth Rate as a Function of Education Expend. as % of GDP

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Mean 2001-2010 (126 Countries)

Figure 12: GDP Growth Rate as a Function of Education as % of Total Gov. Expend.

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Mean 2001-2010 (119 Countries)

Figure 13: GDP Growth Rate as a Function of Percent Education Expenditure Current

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27. The most extreme case of investment as a proportion of total education expenditure (highest proportion investment, lowest proportion current) is Laos, with less than half of the total education budget allocated to recurrent expenditure and a mean growth rate well above the average. The twenty countries with the highest proportion of recurrent expenditure (lowest proportion investment) have a mean growth rate well below the overall cross-country mean, and the twenty countries with the lowest proportion of recurrent expenditure (highest proportion investment) have a mean growth rate well above the overall cross-country mean. Although the data points are widely scattered, the pattern is consistent with the hypothesis that higher proportions of investment expenditure (low proportions of current expenditure) in education tend to promote higher rates of economic growth. 28. Complexity and Consequences. Richer countries tend to have lower growth rates than poorer countries, although the relationship is very diffuse. This is a well-known and long-established pattern in development economics, but with considerable variation. 29. Richer countries also tend to spend a larger proportion of the GDP on education: they have overall higher levels of education, with higher education participation rates at every level. The relationship is very weak, however: many poorer countries spend heavily on education. 30. This leads to what might appear to be a contradiction, as suggested in Figures 11 and 12 above. Countries which spend more on education as a proportion of GDP tend to have lower growth rates than countries which spend less. In apparent contradiction, countries which spend more on education as a proportion of total government spending tend to have higher growth rates than countries which spend less. 31. One source of complexity visible here, is the fact that the data set covers only public expenditure on education: private expenditure on education is hidden from the analysis, and private expenditure on education can be high both in richer countries and poor countries. In most countries, however, the largest source of total education almost certainly comes from the public budget. 32. A second source of complexity is even more visible in relation to education expenditure as a proportion of total public expenditure. The contrast between Figures 8 and 9 above is striking. Richer countries tend to spend a larger proportion of the GDP on education; poorer countries tend to spend a larger proportion of the public budget on education (although note that in both cases the relationship is weak). 33. Part of the explanation for this latter difference between richer and poorer countries in education spending patterns can be suggested by Figure 5 above and especially by Figure 13 above. Governments in many poorer countries see human resource development (HRD) as providing a major strategic thrust toward social and economic development and modernization. This is certainly the case among the ASEAN countries, especially as they approach the establishment of the ASEAN Economic Community in 2015. As a part of their development efforts, governments raise the overall level of education expenditure as a proportion of the total government budget. 34. But more important than simply raising expenditure on education is the need to spend more on education system development. Governments need to invest in expanding and developing the system building and equipping more, bigger, and better education and training facilities at all levels, developing new curricula, etc. Thus countries making a strategic push for social and economic development and modernization through HRD will tend to spend a larger proportion of their total education budget on investment than countries not making such a strategic push.
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F. FUTURE RESEARCH
35. The study presented here is at a very simple level of cross-national comparative analysis. We have touched only very briefly and superficially on some of the numerous issues related to specification of the variables, the functional forms of the equations, and the structure of the analytical model. 36. We have not discussed an analytical model here, other than to note (in paragraph 5, page 1 above) that we are exploring the existence or non-existence of a correlation between variables. In the captions to the figures we have used the form Y as a function of X as a matter of convenience to indicate what is on the Y axis (vertical) and what is on the X axis (horizontal) but without the assumption of causal relationship. 37. What we have observed here represents a conflation of the correlations of several variables, for example: The correlation between level of economic development and economic growth rate (richer countries tend to have lower growth rates); The correlation between level of education expenditure and economic growth rates: o Richer countries tend to spend more on education as a proportion of GDP and to have lower growth rates; but o Poorer countries tend to spend more on education as a proportion of total government expenditure and to have higher growth rates. 38. To sort out the inter-relationships at cross-national level among economic variables and education expenditure variables, given these complexities (and others not discussed above) would require the development of a causal model with explicit causal mechanisms relating the variables. This would in turn require explicit functional equations and a suitable data set. It would require a multivariate path analysis. 39. Only a very limited number of variables have been included in the present study. Other relevant variables for such an analysis could include: Literacy; Population growth; Economic and labor force structure; International trade and labor force migration patterns; and Penetration of transportation and telecommunications networks.

BIBLIOGRAPHY AND SOURCES

Noonan, R. (2001). Education Financing in Lao PDR. Patterns of Expenditure: A turbulent decade of transition (1990 2000). Vientiane: Sida, World Bank. June 15, 2001. UIS. (2012). UNESCO Institute for Statistics, Custom Tables. Participation and literacy data accessed 19 October , 2012 at: http://stats.uis.unesco.org/unesco/TableViewer/document.aspx?ReportId=136&IF_Language=eng& BR_Topic=0

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