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Effect of school expenditures on education results

Abstract This study examines the effect of government educational spending and macroeconomic uncertainty on schooling outcomes in Nigeria using the econometric methods of cointegration and error correction mechanism together with the vector auto regression methodology. The results indicate that schooling outcome cointegrated with all the identified explanatory variables.

The study found that public educational spending impacts positively on schooling outcome while macroeconomic instability impacts negatively. The variance decomposition analysis shows that "own shocks" constitute the predominant source of variation in schooling outcome. The impulse response analysis shows that any unanticipated increase in the macroeconomic uncertainty rate will have a contractionary impact on literacy rate.

The policy implication of this study is that government should pay attention to policies that enhance educational attainment through adequate public social investment under stable macroeconomic environment. Los resultados indican que los logros educacionales se cointegraron con todas las variables explicativas identificadas. The reasons put forward in defense of government in volvement in education financing are not far-fetched. According to Seneducation has both intrinsic and instrumental value.

It is desirable not only for the individual but also for the society as a whole. At the aggregate level, a better educated workforce is thought to increase the stock of human capital in the economy and increase its productivity. Considering the externalities prevalent in education, it is widely accepted that the state has a key role to play in ensuring equitable distribution effect of school expenditures on education results educational opportunities to the entire population.

This is particularly crucial in developing countries such as Nigeria that suffer from high levels of poverty, inequality and market imperfections. Public intervention in education can lead to improvement in the future stream of individuals, enabling equitable distribution of wealth and help reduce poverty Mukherjee, Furthermore, the justification of public spending on social goods, particularly education, is based on the classical literature on public goods, where it is argued that social goods provide a rationale for the allocative function of budget policy.

It effect of school expenditures on education results argued that the public sector performs certain functions because some goods cannot be provided efficiently through the market system owing to apparent market failures or associated inefficiencies. Market failure occurs because the benefits created by social goods are not limited to one particular consumer who purchases the goods, as is the case with private goods.

Although the market mechanism is structured for the provision of private goods, the exclusivity of the title accorded purchasers of effect of school expenditures on education results goods is lacking in social goods. In view of the foregoing, conscious attempts have been made to examine the effectiveness and efficiency of public expenditure in the social sector. Most of these studies either effect of school expenditures on education results cross-country datasets or concentrate on a sub-sample of developing economies or on a particular region like Africa.

The results of these cross-country studies are mixed. Harbison and Hanushekfor instance, examined twelve studies in developing countries that investigated the linkages between public education spending and educational outcomes. Six of these studies establish a statistically significant positive relationship between the two; others found no evidence of any measurable impact on outcomes. This, by implication, suggests the need for an in-depth analysis of the effectiveness and efficiency of public spending in educational outcomes with a view to determining whether further gains can be achieved with better use of resources with improved quality.

Educational attainment is believed to be sensitive to macroeconomic problems resulting from negative internal and external shocks that a country has to face. These shocks include terms of trade shocks, political instability, war, policy uncertainty and other disturbances among others.

Sudden economic downturns, resulting from factors such as fiscal weakness, weak financial systems, falling external competitiveness, a decrease in export volumes, and natural disasters are a reality in many African countries, including Nigeria.

The theory effect of school expenditures on education results human capital suggests that macroeconomic crises can affect the total amount of schooling attainment, the timing of this schooling, and the effort which is devoted to schoolwork. Generally, an adverse macroeconomic shock will depress major macroeconomic variables including current employment and wage prospects.

Consequently, the opportunity cost of attending school will fall. Holding everything else equal, this should culminate in an increase in human capital investment. When macroeconomic shocks are persistent, they may also depress expected lifetime earnings, and have an effect on the marginal benefit from schooling. If the lifetime earnings of all individuals increased by the same percentage, regardless of their schooling, then the marginal benefit associated with an additional year of schooling will be lower.

Crises need not, however, have a uniform effect across the board on expected earnings. In addition, the effect of a crisis on the wages and employment prospects of adults in a household may also have an effect on the schooling and employment decisions of children Schady, Galor and Zeira reveal that income and wealth distributions affect the adjustment of the economy to aggregate shocks, when this adjustment calls for investment in human capital and sectorial shifts.

Also, many studies have explored the complex nature of the relationship between human capital formation and child labor and found that child labor impedes the acquisition of education and human capital in developing countries. Some studies, however, find the opposite result: Basu and Van give a thorough review effect of school expenditures on education results studies that examined the relations between intergenerational dynamics of child labor and human capital formation.

Empirical studies on the relationship between macroeconomic uncertainties and human capital formation are scanty. The empirical evidence on the interaction between effect of school expenditures on education results shocks, educational investment and schooling outcomes is mixed. For instance, evidences abound in the literature that the United States of America experienced a large increase in secondary school enrollment rates during the Great Depression, especially in those states that were hardest hit by unemployment Goldin, These studies are mainly cross-sectional in nature which, by implication, means that the parameter estimates are similar across countries.

Therefore, the main objective of this study is to examine the effect of public educational effect of school expenditures on education results and macroeconomic uncertainty on schooling outcomes in Nigeria for the period from tousing the econometric methods of cointegration and error correction techniques together with the vector auto-regression methodology.

The organization of the rest of the paper is as follows: Section three gives an overview of the performance of Nigerian economy and educational development. Section four deals with the analytical procedure, model specification and estimation techniques, while section five presents the empirical analysis, including the policy implications of the findings. Lastly, section six summarizes the findings and also contains the concluding remarks.

However, decades of intensive studies produce conflicting results. Most of these studies are based on cross-country data.

I. Introduction

Findings by Anand and Ravallion showed that there was no significant relationship between education outcomes and public education spending.

Results indicate that greater public spending on primary and secondary education has a positive impact on widely used measures of education attainment such as gross enrolment in primary and secondary education, gross enrolment in secondary education and persistence through grade four. Regression estimates showed that performance in the education sector is also affected by other factors such as per capita income, urbanization, adult illiteracy, access to safe sanitation and water, and immunization.

This is consistent with the findings of Mingat and Tan McMahon found a negative and significant relationship between per pupil expenditures and effect of school expenditures on education results primary gross enrolment rate, and a positive and significant impact of total education expenditure as a proportion of GNP.

Findings from the McMahon study suggest that increasing primary education expenditures has effect of school expenditures on education results positive and significant impact on the primary gross enrolment rate. However, it is noteworthy that this study does include per capita income as an explanatory variable, and probably these resource variables might have been used as proxy for per capita income.

Colclough and Lewin include per capita income variables and found that expenditure as a proportion of GNP is not significant when entered separately. In a study of five African countries, Ogbu and Gallagherattempt to establish whether education outcome are affected by the composition of public education spending. They reported that enrolment rates are significantly affected by the composition of public education spending.

Using a panel data for African countries from tothe aim of Anyanwu and Erhijakpor was to investigate the relationship between government expenditure on education and enrolment at the primary and secondary school levels, with illustrations from the SANE countries South Africa, Algeria, Nigeria and Egypt.

Results provide support for the proposition that government expenditure on education impacts positively on education attainment. The evidence is stronger for secondary education.

The study also finds that other policy interventions, such as consolidating and sustaining democracy, accelerating national income and international community fulfilling its aid promises to Africa also were found crucial for school enrolment.

This is consistent with the findings of Mingat and Tan which reported that others variables such as per capital income, the age distribution of effect of school expenditures on education results population, parental perceptions of costs and benefits, urbanization and family background or parental education are statistically significant variables explaining education attainment. A number of studies have examined the effect of macroeconomic crises on schooling outcomes.

However, the link between crisis and schooling attainment seems to be ambiguous. Kisswani explores the impact of the Great Depression on education, on race whites and blacks and gender males and femaleseffect of school expenditures on education results the period The results using effect of school expenditures on education results census data from show some evidence that the Great Depression affected the education of white individuals born between and Schady analyzed the impact of macroeconomic crisis on education in Peru between and The author reported that crisis has no effect on attendance rates but noticed a significant decline in the fraction of children who are both employed and attend school.

Using cross-country regressions, Flug, Spilimbergo and Wachtenstein report that macroeconomic shocks have negative effects on enrollment. In Indonesia, Thomas et al. This is consistent with the works of Cameron and Pradhan and Sparrow which report some impact of the crisis on enrollment, although the effects tend to be small.

The message from the above review is clear. The empirical evidence on the interaction between public educational expenditure, macroeconomic shocks and schooling outcomes is inconclusive. Generally, it is difficult to draw policy conclusions from cross-country data; much however, depends upon the country specific situation. This is the motivation for this paper. As a result, the country lost decades of development due to negative-to-slow growth and has been one effect of school expenditures on education results the weakest growing economies in the world on a per capita basis especially for the period Broad macroeconomic aggregates -growth, terms of trade, real exchange rate, government revenue, etc.

Over the last three decades, high macro volatility has become a key determinant as well as consequence of poor economic management NPC, Table 1 and Figure 1which provide data on selected macro and socioeconomic effect of school expenditures on education results for selected years, support this summary view. Generally, the economy has been characterized by widening saving investment gap, high variable rates of inflation, chronic balance of payments and huge budget deficits. The extremely volatile macroeconomic environment has continued to produce adverse economic and social effects in all spheres of life.

An examination of the trends in public spending on education further sheds light on the possible impact of macroeconomic instability on human-capital related sectors. Figure 2 and Table 2 show the expenditure on education as a ratio of GDP and total government expenditure.

Education expenditure as a ratio of total government expenditure between and averages 6. The emerging trend shows that education expenditure as a ratio of GDP follows the same trend. It ranges from 0. It is evident from effect of school expenditures on education results analysis that the Nigerian government needs to commit much greater fund to education sector if the country wants to develop skilled manpower that would make enormous contribution to growth and development.