Abstract:

Government expenditure is a complicated issue when it comes to education and human capital. It has been argued that government expenditure on education results in economic growth, but this approach has certain limits. On the other hand, the case for economic growth that leads to expenditure in education, is also supported. In both cases, the argument has human capital at its center, since it seems that better prepared students, who gain practical and theoretical competencies and abilities, will enter the labor market and their efficiency will be higher and it will also be applied sooner. That would be the result of more efficient education. Recent studies have analyzed the impact of education on economic growth, in developed countries, as well as in less developed ones in order to analyzed the relationship between education and economic growth, having as statistical indicators the government expenditure for education and gross domestic product for economic growth. Starting from these studies, this research proposes to determine the short term and long term relationship between general governmental expenditures for education and gross domestic product, for the 11 analyzed countries of Eastern and Central Europe (ECE), that are part of the European Union. In order to achieve this, the annual Eurostat statistical data was used, for the 2000-2022 timeframe. The autoregressive distributed lag (ARDL) model for panel data was used to identify the short term and long-term relationship. The results showed that at the panel level, between the general governmental expenditures for education and the gross domestic product, there is a positive relationship, that is statistically significant, but only on the long-term. At an individual level, the analysis for each of the 11 analyzed countries shows that for five of them, namely the Czech Republic, Latvia, Hungary, Poland, and Romania, the general governmental expenditures for education have a positive impact on the economic growth on short and long term. For the other six countries, we have identified only a long-term influence. At the panel level, the causality was also tested, with the aid of the Dumitrescu-Hurlin Panel Causality Test. The results showed that between the general governmental expenditures for education and economic growth there is a bidirectional relation. Based on these results, it can be affirmed that a gross domestic product growth would determine a growth in the governmental expenditures on education. Also, a growth in the expenditure on education would lead to growth for the gross domestic product, both in the short and long terms. In this research the focus will be on determining the importance of governmental expenditure in education, and the effect they have on the gross domestic product, both in the short term and in the long term. The research also aims at determining whether investing in human capital would lead to a growth for the gross domestic product, in the long term. It seems plausible to affirm, based on the findings of other research, that such investments allow for the development of student competencies and abilities, that can and will be used in real life situations, therefore, the educational system becomes more efficient at preparing students for the labor market.

Keywords:

Expenditure for education, economic growth, Panel ARDL.