Public Expenditure on Education and Economic Growth in Africa: A Panel Data Analysis

Abstract

Human capital is a key determinant of economic growth, particularly through the improvement of knowledge, skills, and labor productivity. In this context, public expenditure on education represents an important economic policy instrument that enables governments to support human capital accumulation and, consequently, economic development. This study examines the impact of public education expenditure on economic growth in a panel of 24 African countries over the period 1995-2022 and comprising 672 observations. It aims to address certain limitations in the existing literature, notably the predominance of single-country analyses, the use of relatively old study periods, and the absence of a comprehensive set of diagnostic tests. The empirical analysis is based on annual data from the World Bank and employs an econometric approach based on panel data. A series of diagnostic tests examining heteroscedasticity, autocorrelation, cross-sectional dependence, and endogeneity is conducted to identify the main characteristics of the data, the model is estimated using the Panel Corrected Standard Errors (PCSE) method. This method allows for correcting standard errors in the presence of heteroskedasticity, serial correlation, and cross-sectional dependence. The results reveal a positive and statistically significant relationship between public education expenditure and economic growth. More specifically, a 1% increase in public education expenditure is associated with a 0.173% increase in gross domestic product. The model shows strong explanatory power (R² = 0.762), while endogeneity tests do not reveal any endogeneity problem and the results reveal significant heterogeneity in the coefficients across the countries studied. These results highlight the role of public investment in education in strengthening human capital and supporting economic performance. They encourage policymakers to improve the efficiency and allocation of education expenditure in order to promote sustainable human capital accumulation and sustainable economic growth.

Classification JEL : : H52 ; I25 ; O47 ; C23

Paper type : Empirical Research