Does Government Expenditure on Education Promote Economic Growth? Empirical Evidence from Ethiopia

Abstract

AbstractThe main purpose of this study is to examine the effect of government educational expenditureon economic growth over the sample period between 1998Q1-2015Q4 in Ethiopia. Using Jordas(2005) local projection method, generalized impulse response functions are generated to examinethe effect of government educational expenditure on economic growth in Ethiopia. The impulseresponses indicate that one standard deviation shock increase in government expenditure oneducation leads to a positive and statistically significant increment on output in the whole periodconsidered. That is, one standard deviation shock in government expenditure on education leadsto around 0.9 per cent increment in output at the eighth quarter. As to the effects of our controlvariables, output also increases significantly in response to the labour force shock. The effects ofinflation and real effective exchange rate shocks on output, however, are negative andstatistically significant.