2/28/2015

Public Expenditure In Education And Economic Growth

A Report on

A report on

Public expenditure in education and economic

growth: a case study of Bangladesh

F-413

Course title: Government finance

Submitted to

Taher Jamil

Lecturer

Department Of Finance

Faculty of Business Studies

University Of Dhaka

Date Of Submission: december30, 2014

Submitted by

Group Profile:

Name Roll

Md. Amir Hamja Nerob Id. 17-40

Mehedi Hasan Niloy Id. 17-44

Lutfun Nahar Loona Id. 17-64

Maruf Ahmed Id. 17-82

Tanjum Tamanna Id. 17-87

Letter of Transmittal

Date: February 28, 2015

Taher Jamil

Lecturer

Department of Finance

University of Dhaka

Subject: A Report on Public expenditure in education and economic growth: a case study of

Bangladesh.

Dear Teacher

With due respect this is to inform you that we are the student Department of Finance,

University of Dhaka. Its our pleasure to prepare a report on Public expenditure in

education and economic growth: a case study of Bangladesh Course. Course No. F-

413. It is very important for us to imply our theoretical knowledge on practical experience.

We would like to request you to accept our report as qualified one for your course

assessment process.

Yours Obedient

Amir Hamja Nerob

17-040

On behalf of the group

..

B.B.A. 17th batch

Department Of Finance

University Of Dhaka

Acknowledgements

We are indebted to many persons for providing us encouragement and support during our learning

and working while making this report and we want to thank these persons.

We are very much grateful to MR. Taher Jamil , our respected course instructor, who assigned us

this challenging work. He always guided us to take and overcome this challenge successfully.

Without his help in every step, it was quite impossible for us to finish this report properly in time.

This report is an accumulation of my endeavor for many days.

We are indebted to all the people, with whom we approached during the various stages of writing

this.

Table of Contents

Introduction ......................................................................................................................................7

Review of related literature ..............................................................................................................8

Theories of Public Expenditure and Economic Growth .................................................................. 11

Budgetary allocation in EDUCATION............................................................................................ 12

Trend analysis ................................................................................................................................ 14

Major project taken by Bangladesh Government for the development of Education sector ............ 14

Challenges in developing the education sector of Bangladesh ......................................................... 19

MODEL SPECIFICATION ............................................................................................................ 21

Ordinary Least Square Method: ..................................................................................................... 22

Correlation Analysis: ...................................................................................................................... 22

Regression Analysis: ....................................................................................................................... 23

ANOVA Test .................................................................................................................................. 24

Descriptive Statistics ....................................................................................................................... 25

Hypothesis Analysis: ....................................................................................................................... 26

Conclusion: ..................................................................................................................................... 28

Recommendations ....................................................................................................................... 28

Appendix: ....................................................................................................................................... 29

References: ...................................................................................................................................... 36

Executive summery

Education is an important determinant of economic growth for any country. On the other hand,

Government budget policy affects the long-term growth rate through decisions on priority based

public spending on different sectors. In our report we investigated the long-run relationship

between public expenditure on education sector and economic growth in Bangladesh. This study

investigates the effects of public expenditure in education on economic growth in Bangladesh

over a period from 1984 to 2013, with particular focus on disaggregated and sectorial

expenditures analysis. Government expenditures are very crucial instruments for economic growth

at the disposal of policy makers in developing countries like Bangladesh.in the first three section

we analysis the theoretical aspects of role of Public expenditure in education and economic growth

and different theories of public expenditure. The next section is provided with regular budgetary

allocation, recent projects taken by the government to improve present educational system and

existing challenges for the improvements and probable solutions to overcome those challenges.

Latter the objective of this study is to determine the effect of public expenditure on economic

growth in Bangladesh An econometric model is applied to the analysis ; Ordinary Least Square

Method. The study used Ex-post facto research design and applied time series econometrics

technique to examine the long and short run effects of public expenditure on economic

growth in Bangladesh. The results indicate that Total Expenditure Education is highly and

statistically significant and have positive relationship on economic growth in Bangladesh in

the long run. Here we incorporated descriptive statistics and correlation analysis which says for

one unit change in the overall educational expense the level of total GDP also increases by

0.992484 unit. So the relation between these two variables is quite perfectly positive. The report

also includes the regression analysis of these two variables. This analysis introduces how two

variables, one independent and the other is dependent, are related to one another by expressing

their relationship through an equation.

The result has an important implication in terms of policy and budget implementation in

Bangladesh. We conclude that economic growth is clearly impacted by factors both

exogenous and endogenous to the public expenditure in Bangladesh.

Introduction

Public intervention in the area of education, particularly elementary education, is universally

accepted. From the lens of education as a fundamental right, such intervention directly follows

from the basic features of the paradigm. Even if an alternative paradigm of a modern welfare state

is preferred, its well-accepted tenets lead to a substantive role of the government in the area of

education. What is required is that the government should be interested in (a) the long-term

increase in the expected income of its citizens; (b) higher growth of the economy; and (c) lower

poverty levels. All three are non-controversial as government objectives. Public pursuance of a

policy of better-educated citizens can pay dividends for all the three stated goals as revealed by

the empirical literature on various aspects of education.

Education has both intrinsic and instrumental value: it is desirable not only for the individual but

also for the society as a whole. Education is a key factor for boosting a countrys economy and is

considered as one of the necessary conditions to achieve better outcomes on social welfare. The

social benefits of education provide a powerful set of arguments in favor of public investment to

achieve the social optimum. As a crucial subject matter of public finance, public expenditure on

education and subsequently economic growth has found much attention of economists and

researchers.

The existing view in modern economic growth theory is that education is an important key to

economic prosperity. On the other hand, Fiscal policy of government affects the long-term growth

rate through decisions on public spending in the process of budget announcement. As education is

an important index of socioeconomic development, public financing on education has been a

priority for governments in developing countries. Bangladesh is one of the developing countries

which is striving to achieve economic goal through reduction of poverty, increasing efficient

manpower and accomplishing social welfare at a greater extent through better public financing

decision. Between the years 2000 to 2009, the annual public expenditure on education was on an

average 2 to 2.5 percent of GDP. During the same period, the share of the government budget

devoted to education was on an average 14.95%.

In Bangladesh, increased investments in education are associated with higher returns in the labor

market and higher productivity in the agriculture sector. If education causes GDP to increase at a

greater extent than the allocation to this sector should also be enhanced. Education is a long term.

Process and therefore its necessary to establish long term relationship between these two

variables. Though a number of research on functional relationship between public spending on

education and economic growth have been conducted in many countries but such type of study

remains absent in Bangladesh. The objective of this study is to determine the long run relationship

between public spending on education and economic growth in Bangladesh.

Review of related literature

The development literature has highlighted the role of education in reducing inequalities that

prevail in many developing societies. Education is both a consumption as well as a capital good,

but the conventional credit market mechanisms do not operate efficiently. Inequalities across

generations can persist if the level of education is correlated with parental income and wealth

(Banerjee and Newman, 2003). This characteristic has been used to justify public intervention in

the provision and financing of education from the equity perspective.

Numerous studies discussed about the relationship of the public expenditure on education and the

economic growth. The size of government expenditures in social sector and its impact on economic

growth has emerged as a major public choice issue facing economies in transition. Blanken au et

al carried out an empirical study on expendituregrowth relationship in the context of an

endogenous growth model. They found that the response of growth to public education expenditure

may be non-monotonic over the relevant range. The relationship depends on the level of

government spending, the tax structure and the parameters of production technologies. The

literature has focused on the link between level of public expenditure on education and economic

growth; majority of the studies deal with endogenously generated economic growth and stress on

the role of human capital accumulation in economic growth. An investment in education is very

beneficial to the society, both at the micro level as well as macro level and affects the economic

growth both directly and indirectly.

Education has high economic value. A considerable part of the communitys wealth must be

invested for the same. Investment in education leads to the formation of human capital, comparable

to physical capital and social capital, and that makes a significant contribution to economic growth

(Dickens et al., 2006; Loening, 2004). The policymakers argued that expenditures in social sector

plays an essential role in the economic development of a country by maintaining law and order,

providing economic infrastructure, harmonizing conflicts between private and social interests,

increasing labor productivity through education and health and enhancing export industries (Al-

Yousif, 2001). Baum and Lin (1993) examined the impact of three different types of government

expenditures on the growth rate of per capita GDP using cross-section data from both developed

and developing countries for the period of 1975-85. This study determined that expenditures on

defense, welfare and education have different impacts on economic growth. The growth rate of

educational expenditures has a significant positive impact on economic growth in all cases. Kevin

(2000) explores the transition mechanism that might link the income inequality and economic

growth. He found that public education expenditures are positively associated with future

economic growth, although the contemporaneous effect upon growth is negative. Barro et al (2001)

examines a panel data of around 100 countries observed from 1965 to 1995 and finds that growth

is positively related to the starting level of average years of school attainment of adult males at the

secondary and higher levels.

Education as an investment secures returns in the form of skilled manpower that geared to the

needs of development, both for accelerating economic development and for improving the quality

of the society (Yogish, 2006). According to Chemingui (2005) an increase in government

expenditure devoted to the three priority areas i.e. agriculture, education, and health will affect the

economy through increase in sectoral or economy-wide total factor productivity (TFP). Kamara et

al. (2007) indicate that public expenditure on education is positively correlated with economic

growth in African countries. Nah (1997) studied the impact of various types of social expenditures

on economic growth by using the 1992 data for 68 countries with the help of rank correlation and

regression techniques. The conclusions through ranking reveal that the advanced countries spend

relatively greater proportions of their public expenditure on health and social security but the

developing countries allocate disproportionately larger amount for educational development.

Ansari and Singh (1997) used annual time series data from 1951 to

1987 to study the relationship between public spending on education and growth in India. They

found that there is no long run relationship between the two. Afzal et al (2010) conducted a study

to investigate short-run and long-run linkage between school education and economic growth in

Pakistan and confirmed the existence of direct relationship between them. In another study

Chandra (2010) made an attempt to explore the causal relationship between government spending

on education and economic growth of India using 1950-2009 data. The study shows that the

direction of causation is from education expenditure to economic growth is not immediate to take

effect, rather it can be said that investment in education is expected to affect economic growth of

a country after some period.

Cross-country studies have tried to quantify the impact of government expenditure in raising

educational and health indicators. The effectiveness and efficiency of government expenditure in

the social sector varies between different geographical regions, and also depends on the stage of

development. Innovative institutional arrangements and alternative financing mechanisms are

being explored in order to supplement public funds, and to improve the effectiveness of the public

resources thus invested.

The framework for this review is predicated on the different strands of research mentioned above.

The literature on the rate of return to education indicates that there is considerable rationale

for investing in education on behalf of both the individual and the society. At the earlier

stages, primary and secondary, the social returns can in some cases exceed private benefits,

strengthening the case for public expenditure.

The human capital thus accumulated impacts positively on productivity, and a higher rate

of growth for the economy, as evidenced by empirical applications of models incorporating

schooling variables in economic growth.

Externalities prevalent in the education sector necessitate intervention by the state in order

to ensure equity and improve outcomes. The literature on effectiveness and efficiency in

public expenditure investigates whether there is any impact on human development

outcomes, and whether further gains can be achieved with better use of resources, with

improved quality.

Finally, the growing literature on service provision and delivery delineates the current state

of the debate on how better institutional arrangements and governance can help achieve the

objective of equitable educational opportunity in terms of provision and access, addressing

some of the inefficiencies of public funding and delivery of education

Theories of Public Expenditure and Economic Growth

This section highlights same basic theories that have been used to support the effects of public

expenditure on economic growth. Such theories amongst others are:

Musgrave Theory of Public Expenditure Growth

This theory was propounded by Musgrave as he found changes in the income elasticity of demand

for public services in three ranges of per capita income. He posits that at low levels of per capita

income, demand for public services tends to be very low, this is so because according to him such

income is devoted to satisfying primary needs and that when per capita income starts to rise above

these levels of low income, the demand for services supplied by the public sector such as health,

education and transport starts to rise, thereby forcing government to increase expenditure on them.

He observes that at the high levels of per capita income, typical of developed economics, the rate

of public sector growth tends to fall as the more basic wants are being satisfied.

The Wagners Law/ Theory of Increasing State Activities

Wagner's law is a principle named after the German economist Adolph Wagner (1835-1917).

Wagner advanced his law of rising public expenditures by analyzing trends in the growth of

public expenditure and in the size of public sector. Wagners law postulates that: (i) the extension

of the functions of the states leads to an increase in public expenditure on administration and

regulation of the economy; (ii) the development of modern industrial society would give rise to

increasing political pressure for social progress and call for increased allowance for social

consideration in the conduct of industry (iii) the rise in public expenditure will be more than

proportional increase in the national income (income elastic wants) and will thus result in a relative

expansion of the public sector. Musgrave and Musgrave (1988), in support of Wagners law,

opined that as progressive nations industrialize, the share of the public sector in the national

economy grows continually.

The Keynesian Theory

Of all economists who discussed the relation between public expenditures and economic growth,

Keynes was among the most noted with his apparently contrasting viewpoint on this relation.

Keynes regards public expenditures as an exogenous factor which can be utilized as a policy

instruments promote economic growth. From the Keynesian thought, public expenditure can

contribute positively to economic growth. Hence, an increase in the government consumption is

likely to lead to an increase in employment, profitability and investment through multiplier effects

on aggregate demand. As a result, government expenditure augments the aggregate demand, which

provokes an increased output depending on expenditure multipliers.

The Solows Theory

Robert Solow and T.W. Swan introduced the Solows model in 1956. Their model is also known

as Solow-Swan model or simply Solow model. In Solows model, other things being equal,

saving/investment and population growth rates are important determinants of economic growth.

Higher saving/investment rates lead to accumulation of more capital per worker and hence more

output per worker. On the other hand, high population growth has a negative effect on economic

growth simply because a higher fraction of saving in economies with high population growth has

to go to keep the capital-labor ratio constant. In the absence of technological change & innovation,

an increase in capital per worker would not be matched by a proportional increase in output per

worker because of diminishing returns. Hence capital deepening would lower the rate of return on

capital.

The Endogenous Growth Theory

The basic improvement of endogenous growth theory over the previous models is that it explicitly tries to

model technology (that is, looks into the determinants of technology) rather than assuming it to be

exogenous. Mostly, economic growth comes from technological progress, which is essentially the ability

of an economic organization to utilize its productive resources more effectively over time. Much of this

ability comes from the process of learning to operate newly created production facilities in a more

productive way or more generally from learning to cope with rapid changes in the structure of production

which industrial progress must imply.

Budgetary allocation in EDUCATION

Budget is the governments most powerful instrument to address development challenges and

ensure effective coverage of quality social services for its citizens. Hence, the Medium Term

Budgetary Framework (MTBF) has set a range of priorities for education. The budgetary allocation

to education partially measures how far these policies and programmers are being translated into

fiscal commitments. Available data reveal commendably that the education sector budget has been

one of the top priorities of the Government of Bangladesh for many years. Education gets the

second largest allocation after public administration

As shown in Figure, the share of budget of education has been consistently very high and increasing over

time. Even though development budget increased proportionately in provisional budget of per annum it

means that more attention should be paid by the stakeholders to balance the development portion of

education sector budget, which seems to get less priority than recurrent expenditure.

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Chart Title

Public spending on education Government expenditure

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Trend analysis

By analyzing the data we found that the allocation in the educational sector is increasing year to

year. And we also found that with increase in the total budget allocation the contribution of the

educational sector in the overall GDP in also increasing. The following graph shows the trend in

the budget allocation in the education sector.

From base year 1990 there is an upward trend of expenditure on education sector after 2005 the

expense started to increase in a higher rate.

Major project taken by Bangladesh Government for the development of Education sector

1. Free text book distribution

In the wake of recurring textbook crisis in previous years, the government in 2009 had taken

the decision of free book distribution at both primary and secondary levels. This enables the

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students of primary and secondary grades to begin the New Year with new textbooks in their

hands.

2. Investment in Higher education

To increase the opportunity and quality of higher education, Bangladesh govt. has taken the project

of establishing one university at each district. As part of this, the govt. has approved a number of

universities throughout the country. Among them Bangabandhu Sheikh Mujibur Rahman

Agricultural University, Bangladesh University of Textiles, University of Professionals, Barisal

University are worth mentioning. Academic Innovation fund has been created to encourage

research in higher education sector. To promote higher education in private sector, the govt. has

enacted Accreditation Council for Private Universities, Cross Border Higher Education act etc. In

addition, the govt. has constructed a number of libraries, halls, academic building in different

public universities.

3. Female education assistance project

The Female education assistance project in Bangladesh was established to increase the enrollment

of girls in educational institutions, thereby delaying marriage and childbearing. While causality is

difficult to establish, data suggest that the stipend program has contributed to the rise in enrollment

of girls in educational institutions. At present, there is three education assistance projects is

operated by Bangladeshi govt. such as

Higher Secondary Female Stipend Project Female Secondary School Assistance Project Female

Secondary Stipend Project.

4. Multimedia classroom project

The education initiatives by Access to Information Project aim to make teaching and learning more

effective and enjoyable for both students and teachers using ICT. As part of the education reform

driven by the Ministry of Education, a2i through public private partnership has so far established

500 multimedia classrooms in secondary schools and trained about 4500 teachers through 400

trainers of public training institutes.

5. Monthly pay order

The govt. has decided to follow nationalization policy in secondary and higher secondary level

institutions. As part of this, govt. provides monthly Payment Order (MPO) facilities for secondary

school level. Government has raised the number of stipends for school students to 30 lakh from 17

lakh and included 1,624 educational institutions in the monthly payment order (MPO).

6. 11 Project model

To increase the educational facilities to meet the recurring increasing demand in education sector,

govt. has decided to establish 11(Eleven) Higher Secondary Model School (Non-Government) In

06 (Six) Divisions Including Dhaka Metropolitan City.

7. Teaching quality improvement project

Through this project, quality initial and in-service teacher training and continuous professional

development are provided to all eligible teachers of grades 6-10 in government and registered non-

government secondary schools in Bangladesh. Project activities also improve the organizational

capacity of training institutions and the training infrastructure for secondary school teachers and

administrators, including three under-served areas.

8. Teacher appointment, training and promotion

To reduce the pressure of admission in secondary level, govt. has initiated double shift and has

created 2000 posts for the teachers. In addition, the govt. has amended Bangladesh Civil Service

Recruitment Rules-1981 partially to promote teachers in various posts. The govt. has also initiated

training on Senior Staff Course on Education and Management (SSCEM), Advanced Course on

Education and Management, Training on ICT Application in Institutional Work etc.

9. Infrastructural development

Developing educational infrastructure is crucial for ensuring congenial learning environment,

incentivizing children to enroll and prevent dropouts. The govt. provided Primary Schools

Rebuilding and Reform Project. Under Primary Education Development Project 2, the govt. has

built 40,870 additional classrooms; built 398 primary schools cum cyclone shelters; constructed

23,202 toilets; dug and set up 17,275 deep tube wells; repairing 7,103 primary schools.

10. Policy reforms

The government took a rather giant leap and initiated the formulation of a new education policy,

one that will be more science-based, time befitting and will nurture the creative faculties of the

minds of children. After comprehensive research works, reviews and ratifications, the policy was

formulated in 2010. This education policy received huge acclamation from academics, litterateurs,

students and guardians and is considered the most time-befitting education policy the country ever

had. Besides educating all, the new education policy aims to make sure that they receive quality

education.

11. Inclusive education

To encourage the ultra-poor children in coming to schools, the government has launched school

feeding program in 2100 schools

12. Modernized Textbook

As many as 111 textbooks have been modernized, preschool feeding program has been introduced

and 26,192 primary schools have been nationalized. In a bid to prepare children for the challenges

of a more competitive world in future, the government has introduced two more pre-SSC public

examinations. Primary School Certificate-PSC and Junior School Certificate-JSC and equivalent

Dakhil Certificate Examinations have been introduced.

13. Dynamic website

National Curriculum and Textbooks Board (NCTB)s website has been made more dynamic. All

primary and secondary textbooks can be downloaded in their e-book formats from this platform.

In addition, all schools of different boards are also asked to make their own website.

14. Delivering lessons through broadcast

In order to improve the quality of education in all schools of the country, and as part of a holistic

teaching approach, since 14th June 2011, educational lessons on English, Mathematics and Science

of the best performing public schools are being broadcast in the national television channel,

Bangladesh Television (BTV). Currently, the frequency of the broadcast is three mornings a week

for one hour.

15. ICT education

Bangladesh as a third world country has a great concern over this deficiency and believe that the

digital divide should be reduced so that there will be an economic recovery. Substantial education

has been attached to ICT education in the National Economic policy 2010. Realizing the present

nature of global world order the present Govt. of Bangladesh has recently undertaken a program

named ICT in Education Master Plan (2012-2021) to facilitate the Education Policy 2010. In

addition to that, to make the country a digitized the Govt. has also endorsed The National ICT

Policy 2012. It is expected that the proper implementation of the policies would minimize the

digital divide, ensure participation for all and generate a skilled work force for future. This master

plan along with ICT Policy 2012 will facilitate in the comprehensive use of the ICT in education

and employment generation. This policy framework expected to create the following opportunities.

16. Development of Vocational education

The govt. is working is establish at least one vocational educational institute at every district. The

govt. has also undertaken Skill development project and Skill and Training Enhancement project

to train teachers and started stipend facility for vocational students.

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Challenges in developing the education sector of Bangladesh

The Government of Bangladesh has demonstrated strong commitment to education since

independence by formulating relevant national policies, strategies and laws, and ratifying relevant

conventions and declarations at regional and international levels. As a result, the country has

achieved substantial progress in increasing and sustaining net enrolment in primary schools from

85 per cent in 2000 to 94 per cent in 2010 and achieving gender parity in both primary and

secondary school enrolment. Bangladesh is one of the top performing countries in South Asia after

Sri Lanka that has achieved gender parity in education.

Despite an impressive headway, there are some unfinished and emerging inequities that must be

dealt with to sustain past progress and put the country on the path of middle income growth with

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Revenue budget in Education Sector

equity. For instance, the issues of quality of learning, attendance of children in pre-primary

schools; attendance, retention and performance of children in primary and secondary schools; and

disparities based on geographic locations are prevailing concerns to government, development

partners, parents and indeed all stakeholders, as articulated in the Primary Education Development

Programmed III (PEDP III).

ACCORDING to Article 17 of our Constitution, all the children of Bangladesh are supposed to

receive full free education up to secondary level. But in reality, it is not so, especially for children

from poorer households in rural areas. Recent survey done by BRAC reveals that poor parents

have to pay bribe at every step of their child's schooling. Such corrupt practice of extorting money

from poor parents prevails among about half of the government schools in the country.

Bangladesh has one of the largest primary education systems in the world, according to the

Directorate of Primary Education (DPE). There are a total of 37,672 government primary schools

in the country with an estimated 10.7 million primary school aged children (6 to10 years). DPE

figures also show that at present, a total of 6,300 primary schools around the country do not have

a headmaster. The minimum international standard for teacher- student ratio is 30: 1 but in

Bangladesh there is one teacher for every 53 students.

Lack of qualified teachers and poor school facilities in terms of the number of schools, classrooms,

libraries and playgrounds are responsible for poor quality education at primary schools. A recent

DPE internal report shows that around 70 percent of children are unable to read or write properly,

or perform basic mathematical calculations even after five years at primary school. The World

Bank in their report titled Bangladesh Education Sector Review published in March also said

the same. It also observed that the most common teaching method at secondary classes in the

country is lecturing and reading textbooks and when it comes to interaction, teachers only ask

closed 'yes' or 'no' questions to check whether the students have memorized the textbook

information or not. Most teachers feel uncomfortable in adopting innovative educational

approaches as they fear that using other approaches may result in poor performances in

examinations. As a result, though the pass rates in public examinations are getting higher, a huge

number of students are failing to master the desired competencies due to a flawed education

system.

Our secondary and higher secondary curriculum doesn't reflect market demand or job-oriented

syllabuses. In 2013, a total of 10, 02,496 students participated in H.S.C Exam from different boards

and among them 744,891 students came out successful. After SSC and HSC, research shows that

35 to 40 percent of the students in our country have no scope of enrolling themselves to collage or

public universities

Bangladesh has certainly made remarkable progress in expanding the primary education especially

raising enrollment of the students and bringing gender parity. But our education system is not yet

pro-poor and the quality and curriculum do not effectively serve the goals of human development

and poverty eradication. Our traditional primary, secondary and higher secondary studies are not

producing quality or skilled persons to climb the ladder of poverty.

We need to unify the various types of education systems that exist in our country. We must create

a level playing field where every student will get the same and proper opportunity. Discrimination

in every stage of education must be removed or else mental separation will be established from the

very beginning of their educational life, which can be very dangerous for a nation.

Bangladesh spends less than 3 percent of its GDP on the education sector. In our national budget

for the year 2013, the education sector got the third largest allocation amounting to Tk.25, 114

crore of which Tk. 11,935.37 crore was set for the primary and mass education, and Tk.13, 179.23

crore for the education ministry. The budgetary allocation for education in our country is not

adequate compared with those of other South Asian and developing countries that put education

at the top of the policy agenda. More investment should be made to upgrade the infrastructure

facilities. Teacher training must also be emphasized, with age-old methods of delivering only

lectures replaced by classroom interaction. At all levels, teachers should be appointed based on

merit and experience, and not on political consideration.

MODEL SPECIFICATION

The study investigates the relationship between economic growth and public expenditure on

education. The data set comprises of annual time series data for Bangladesh over the sample period

of 1984-2013.

Ordinary Least Square Method:

Most of the studies typically use Ordinary Least square (OLS) to estimate following growth equation:

Yt = 0 + 1xt + t

Where Yt is the real gross domestic product (RGDP), 0 is the intercept term, is the regression

coefficient, Xt is a set of baseline explanatory variables and t is the error term.

Yt = Dependent Variable (RGDP).

X = Education Expenditure

t = Time series (Annual)

0 = Represents the constant or intercept on Y axis

According to excel calculation the regression output the equation stands as-

Yt= 991136.84 + 32.551429*Xt + t

Here,

0 = 991136.84

1 = 32.551429

Correlation Analysis:

Correlation means how the two variables are related to one another. For changes in one variable

how much the other variable changes and the direction of change is determined by correlation. The

value of correlation remains between (-1) to (+1). The correlation matrix helps to find the

correlation between two variables. This can be calculated by using excel data analysis function.

The excel output shows

GDP Educational Expense

GDP 1

Educational

Expense 0.992484 1

From this it can conclude that there is a positive relationship between GDP and educational

expenditure. For one unit change in the overall educational expense the level of total GDP also

increases by 0.992484 unit. So the relation between these two variables is quite perfectly positive.

Regression Analysis:

The report also includes the regression analysis of these two variables. This analysis introduces

how two variables, one independent and the other is dependent, are related to one another by

expressing their relationship through an equation.

The excel provides us with the mechanism to calculate the regression between variables. In our

analysis the dependent variable is RGDP and the independent variable is education expenses.

The outputs of the regression analysis are analyzed below:

Regression Statistics

Multiple R 0.992483859

R Square 0.985024211

Adjusted R Square 0.984489361

Standard Error 206117.0372

Observations 30

Multiple R is the correlation coefficient, tells us how strong the linear relationship is. For example,

a value of 0.9924 means a quite perfect positive relationship between GDP and educational

expenditure.

R square: This is r2, the Coefficient of Determination. It tells how many points fall on the

regression line. For example, a value of 98.50% means that 98.50% of the variation of dependent

variables values around the mean is explained by the independent variables values. In this model

the values of educational expenditure can explain about 98.50% changes in the value of RGDP.

Standard Error of the regression: An estimate of the standard deviation of the error of regression

equation. The standard error of the regression is the precision that the regression coefficient is

measured. If the coefficient is large compared to the standard error, then the coefficient is probably

different from 0. This explains the error term of the regression equation and is denoted as .

Observations: Number of observations in the sample is 30.

ANOVA Test

ANOVA

df SS MS F Significance F

Regression 1 78242549693670.70 78242549693670.70 1841.68 0.00

Residual 28 1189558524416.26 42484233014.87

Total 29 79432108218087.00

To check if the results are reliable (statistically significant), look at Significance F. If this value is

less than 0.05, the model is fine. If Significance F is greater than 0.05, it's probably better to stop

using this set of independent variables. Delete a variable with a high P-value (greater than 0.05)

and rerun the regression until Significance F drops below 0.05.

Most or all P-values should be below 0.05.

Coefficients Standard Error t Stat

Intercept 991136.8435 72711.63516 13.6310625

Educational Expense 32.55142922 0.758511999 42.91485071

In our model the F value is 0.00 and the P values are also (0.00, 0.00) insignificant. So the

independent variable is good enough to explain the dependent variable.

The regression line is: y = RGDP =991136.84 + 32.551429*Educational expenses. In other words,

for each unit increase in Educational expenditure, RGDP increases with 32.551429 units. And the

intercept explains the level of GDP without any educational expenditure.

The residuals show you how far away the actual data points are from the predicted data points

(using the equation). For example, the first data point equals 1752768.83. Using the equation, the

predicted data point equals 991136.84 + 32.551429*21966.22= 1706168.9, giving a residual of

1752768.83 - 1706168.9= 46599.97645 (appendix)

Descriptive Statistics

The descriptive analysis shows most of the statistical analysis. Here we can find the central

tendency of the data set by using Mean, Median and Mode. It also determines the standard

deviation of the central value. Standard deviation tells about the viability of the central values of

the data set measured by Mean, Median, and Mode. Other measures also indicate how the values

are symmetric using skewness analysis. Kurtosis analyses the peakness of the data.

GDP Educational Expense

Mean 3661130.69 Mean 82023.86

Standard Error 302161.01 Standard Error 9212.80

Median 3201292.14 Median 74531.16

Mode #N/A Mode #N/A

Standard Deviation 1655003.99 Standard Deviation 50460.60

y = 32.551x + 991137R = 0.985

0.00

1000000.00

2000000.00

3000000.00

4000000.00

5000000.00

6000000.00

7000000.00

8000000.00

9000000.00

0.00 50000.00 100000.00 150000.00 200000.00 250000.00

GDP Y

GDP Y

Linear (GDP Y)

Sample Variance 2739038214416.80 Sample Variance 2546272461.65

Kurtosis -0.56 Kurtosis -0.15

Skewness 0.75 Skewness 0.77

Range 5546196.17 Range 183877.11

Minimum 1752768.83 Minimum 21966.22

Maximum 7298965.00 Maximum 205843.33

Sum 109833920.68 Sum 2460715.77

Count 30.00 Count 30.00

Confidence Level(95.0%) 617988.65 Confidence Level(95.0%) 18842.30

Hypothesis Analysis:

t-Test: Two-Sample Assuming Unequal Variances

GDP

Educational

Expense

Mean 3661130.69 82023.86

Variance 2739038214416.80 2546272461.65

Observations 30.00 30.00

Hypothesized Mean Difference 0.00

df 29.00

t Stat 11.84

P(T

According to the output the t-stat is 11.84 and the two tailed P-value is 0.00 so we will reject the

null Hypothesis. This means that the mean value of GDP and education sector spending cant be

considered equal.

Here we have considered the significance level of P-value is 0.

Conclusion:

This paper has addressed the issue of functional relationship between public expenditure on

education and economic growth of Bangladesh using data during the period of 1984-20013. The

data is subject to unit root test to determine stationary and also integration test. The study finds a

positive and significant impact of public education expenditure on economic growth. The result

shows that a For one unit change in the overall educational expense the level of total GDP also

increases by 0.992484 unit in the long run. The economy of Bangladesh can expect to grow by

investing in education at a greater extent. Therefore The study suggests that Bangladesh

government should increase its public spending on education as well as develop education quality.

Recommendations

In the light of the researchers findings, the following recommendations are presented;

1. Government should ensure that capital expenditure and recurrent expenditure are properly

managed in a manner that it will raise the nations production capacity.

2. Government should direct its expenditure towards the productive sectors like education

as it would reduce the cost of doing business as well as raise the standard living of poor ones in

the country.

3. Effort should be made to increase government funding on education to curtail the level

of strike in our education sector and as well increase funding on anti -graft or anticorruption

agencies in order to arrest and penalize those who divert and embezzle public funds.

Appendix:

Public finance.xlsx

Appendix:

Public finance.xlsx

t-Test: Two-Sample Assuming Unequal Variances

Educational Expense X

GDP Y

Mean 82023.86 3661131

Variance 2.55E+09 2.74E+12

Observations 30 30

Hypothesized Mean Difference

0

df 29

t Stat -11.8395

P(T

2002 3816725.07 88464.05 3816725.07

2003 4017331.92 95634.60 4017331.92

2004 4269238.83 95984.87 4269238.83

2005 4523492.00 106786.28 4523492.00

2006 4823370.00 118431.10 4823370.00

2007 5163832.00 131939.01 5163832.00

2008 5474373.00 130881.31 5474373.00

2009 5750562.00 128458.35 5750562.00

2010 6070972.00 143752.75 6070972.00

2011 6463423.00 162228.21 6463423.00

2012 6884932.00 183176.31 6884932.00

2013 7298965.00 205843.33 7298965.00

0.00

1000000.00

2000000.00

3000000.00

4000000.00

5000000.00

6000000.00

7000000.00

8000000.00

0 5 10 15 20 25 30 35

GDP

GDP

Correlation

GDP Educational Expense

GDP 1

Educational Expense 0.992484 1

SUMMARY OUTPUT

Regression Statistics

Multiple R 0.9924839

R Square 0.9850242

Adjusted R Square 0.9844894

Standard Error 206117.04

Observations 30

ANOVA

df SS MS F Significance

F

Regression 1 78242549693670.70 78242549693670.70 1841.68 0.00

Residual 28 1189558524416.26 42484233014.87

Total 29 79432108218087.00

Coefficients

Standard Error

t Stat P-value Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

0.00

50000.00

100000.00

150000.00

200000.00

250000.00

0 5 10 15 20 25 30 35

Educational Expense X

Educational Expense X

Intercept 991136.84

72711.63516

13.6310625

0.00 842193.8127

1140079.874

842193.8127

1140079.874

Educational Expense

32.551429

0.758511999

42.91485071

0.00 30.99768784

34.1051706

30.99768784

34.1051706

RESIDUAL OUTPUT

Observation Predicted

GDP Residuals

1 1706168.9 46599.97645

2 1714163 95102.4981

3 1841377.9 44755.51704

4 1986424.5 -29895.60234

5 2038418.1 -39643.79673

6 2098016 -47026.64866

7 2105765.5 67079.40712

8 2070867.9 174536.0048

9 2243916.3 114636.5403

10 2350077.3 116364.6103

11 2547030.8 20157.85163

12 2786911.7 -93287.61669

13 3057789.3 -239666.8126

14 3146647.1 -176696.7961

15 3263863.5 -138658.0675

16 3570602 -293223.0831

17 3686131.5 -213928.6343

18 3917898.2 -262570.8149

19 3870768.2 -54043.15538

20 4104179.6 -86847.67434

21 4115581.5 153657.2958

22 4467182.9 56309.14738

23 4846238.3 -22868.33556

24 5285940.1 -122108.0554

25 5251510.5 222862.468

26 5172639.9 577922.1326

27 5670494.3 400477.7228

28 6271896.9 191526.0987

29 6953787.6 -68855.64647

30 7691631.5 -392666.5309

Descriptive Statistics

GDP Educational Expense

Mean 3661130.69 Mean 82023.86

Standard Error 302161.01 Standard Error 9212.80

Median 3201292.14 Median 74531.16

Mode #N/A Mode #N/A

Standard Deviation 1655003.99 Standard Deviation 50460.60

Sample Variance 2739038214416.80 Sample Variance 2546272461.65

Kurtosis -0.56 Kurtosis -0.15

Skewness 0.75 Skewness 0.77

Range 5546196.17 Range 183877.11

Minimum 1752768.83 Minimum 21966.22

Maximum 7298965.00 Maximum 205843.33

Sum 109833920.68 Sum 2460715.77

Count 30.00 Count 30.00

Confidence Level(95.0%) 617988.64 Confidence Level(95.0%) 18842.30

OLS:

Year GDP Y Educational

XY x x^2 y y^2 xy

y = 32.551x + 991137R = 0.985

0.00

1000000.00

2000000.00

3000000.00

4000000.00

5000000.00

6000000.00

7000000.00

8000000.00

9000000.00

0.00 50000.00 100000.00 150000.00 200000.00 250000.00

GDP Y

GDP Y

Linear (GDP Y)

Expense X

1984

1752768.83

21966.22

38501714305.97

-60057.63

3606919439.32

-1908361.86

3641844973664.77

114611698488.88

1985

1809265.49

22211.81

40187060725.14

-59812.05

3577481265.81

-1851865.20

3429404711045.06

110763852888.19

1986

1886133.41

26119.93

49265672516.19

-55903.93

3125249304.41

-1774997.28

3150615339605.41

99229322272.06

1987

1956528.88

30575.85

59822535206.58

-51448.01

2646897566.24

-1704601.81

2905667315859.33

87698367981.71

1988

1998774.30

32173.13

64306818660.16

-49850.73

2485095535.25

-1662356.39

2763428763251.19

82869683730.12

1989

2050989.32

34004.01

69741861113.70

-48019.85

2305905920.39

-1610141.37

2592555238341.29

77318745935.39

1990

2172844.89

34242.08

74402728490.54

-47781.78

2283098425.92

-1488285.80

2214994614623.49

71112943393.33

1991

2245403.91

33170.00

74480058187.05

-48853.85

2386699096.36

-1415726.78

2004282318610.51

69163710128.02

1992

2358552.80

38486.16

90771633434.61

-43537.70

1895531507.17

-1302577.89

1696709157328.52

56711248145.57

1993

2466441.86

41747.49

102967752731.64

-40276.37

1622186052.96

-1194688.83

1427281391829.43

48117730281.77

1994

2567188.70

47798.02

122706547980.42

-34225.83

1171407770.23

-1093941.99

1196709074334.61

37441077820.75

1995

2693624.08

55167.31

148600000695.65

-26856.55

721274116.75

-967506.61

936069031608.73

25983886622.14

1996

2818122.53

63488.84

178919331387.85

-18535.02

343546919.52

-843008.16

710662762985.80

15625172096.29

1997

2969950.34

66218.61

196665973083.78

-15805.25

249806006.46

-691180.35

477730281838.51

10924280016.24

1998

3125205.42

69819.57

218200484704.31

-12204.29

148944783.19

-535925.27

287215892945.18

6540589339.08

1999

3277378.87

79242.76

259708548462.29

-2781.10

7734510.16

-383751.82

147265460627.37

1067251705.13

2000

3472202.88

82791.90

287470272716.57

768.04

589886.46

-188927.81

35693718547.63

-145104242.47

2001

3655327.35

89911.91

328657479448.77

7888.06

62221415.37

-5803.34

33678792.99

-45777092.18

2002

3816725.07

88464.05

337642971286.27

6440.19

41476105.04

155594.38

24209610975.56

1002058066.03

2003

4017331.92

95634.60

384195911255.51

13610.74

185252130.64

356201.23

126879316709.45

4848160863.15

2004

4269238.83

95984.87

409782333679.60

13961.01

194909817.88

608108.15

369795516307.23

8489804281.38

2005

4523492.00

106786.28

483046879676.12

24762.42

613177446.09

862361.31

743667029916.27

21354152995.19

2006

4823370.00

118431.10

571237003385.26

36407.24

1325487012.85

1162239.31

1350800214964.49

42313923735.47

2007

5163832.00

131939.01

681310860710.48

49915.15

2491521873.58

1502701.31

2258111228698.63

75007556414.46

2008

5474373.00

130881.31

716493107938.73

48857.45

2387050471.29

1813242.31

3287847676732.44

88590396467.60

2009

5750562.00

128458.35

738707730134.65

46434.50

2156162327.45

2089431.31

4365723201464.90

97021687776.77

2010

6070972.00

143752.75

872718913982.36

61728.89

3810455837.93

2409841.31

5807335141985.14

148756828732.55

2011

6463423.00

162228.21

1048549536306.75

80204.35

6432737707.95

2802292.31

7852842193711.61

224756032386.31

2012

6884932.00

183176.31

1261156462289.51

101152.45

10231819013.20

3223801.31

10392894889839.40

326095414773.07

2013

7298965.00

205843.33

1502443283666.87

123819.47

15331262121.89

3637834.31

13233838470942.00

450434730540.12

3661130.69

82023.86

11412661468163.30

0.00 73841901387.73

0.00 79432108218087.00

2403659426542.14

b2 32.55142922

b1 991136.8435

Hypothesis

t-Test: Two-Sample Assuming Unequal Variances

GDP Educational Expense

Mean 3661130.69 82023.85916

Variance 2739038214416.80 2546272462

Observations 30.00 30

Hypothesized Mean Difference 0.00

df 29.00

t Stat 11.84

P(T