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

Abstract

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