Education Expenditure and Economic Growth: A Causal Analysis for Malaysia

Abstract

This paper focuses on the long-run relationship and causality between government expenditure in education and economic growth in Malaysian economy. Time series data is used for the period 1970 to 2010 obtained from authorized sources. In order to achieve the objective, an estimation of Vector Auto Regression (VAR) method is applied. Findings from the study show that economic growth (GDP) positively cointegrated with selected variables namely fixed capital formation (CAP), labor force participation (LAB) and government expenditure on education (EDU). With regard to the Granger causality relationship, it is found that the economic growth is a short term Granger cause for education variable and vice versa. Furthermore, this study has proves that human capital such as education  variable plays an important role in influencing economic growth in Malaysia.

Keywords: Malaysian, expenditure on education, economic growth, vector error correction model.