Education levels, government spending and economic growth: A panel data study of low and middle income countries

There has been a push by governments to invest in education over the last few decades. In fact, one of the Millennium Development Goals was to ensure universal primary education by 2015 which resulted in primary school net enrollment in the developing world increasing from 83 percent to 91 percent between 2000 and 2015 (UNICEF, 2016). Despite this rapid increase in enrollment, there still exists an overwhelming number of young adults with no access to education as reflected in the extremely low adult literacy rates of 56.6 percent among low income countries and 84.4 percent for middle income countries in 2010 (World Bank, 2017). Educational attainment levels vary with economic development, with most of the population in low-income countries having access to primary education or none at all. With no clear consensus in the literature, this study investigates the impact of primary, secondary and tertiary education enrollment rates in low and middle-income countries on economic growth. We use World Bank Data of low and middle-income countries for the period 2000-2015. We further examine the role of government spending on primary, secondary and tertiary education levels to effectively identify strategies that create maximum impact on economic growth. Using a dynamic generalized method of movements (GMM) model for our panel data, we find that gross enrollment in primary education matters deferentially for economic growth in low and middle-income countries, and that secondary and tertiary gross enrollment rates have a positive impact on economic growth for both low and middle-income countries. Government spending does not necessarily increase higher gross enrollment rates in primary education; however, it does deferentially affect enrollment rates in secondary and tertiary education for low and middle-income countries.