ea_2015_1-2
UDC: 330.322.3:37
338.1
JEL: H52, J24, I21, I22
COBISS.SR-ID: 216162828
ORIGINAL SCIENTIFIC PAPER
Analysis of the Impact of Public Education Expenditure on
Economic Growth of European Union and BRICS
Tomić Zoran, Faculty of Economics, University of Niš, Serbia12
ABSTRACT – Knowledge is one of the key factors for the development and progress of each of the
world economies. Starting with the industrial revolution, more attention and resources are invested in
the development of the education system. Economies need to invest effort and resources in the
education system that would allow for population to prepare for participation in the economic life of
their country. This means that investing in youth education and training for work in the economy and
development of young people in research, development and science would contribute to the
development of new technologies and knowledge. Development of new technologies and knowledge
contributes to increased competitiveness of country in the global market. This paper presents a
comparative analysis of investment funds in the education systems of the European Union and
BRICS, and it is shown that there is a positive correlation between public expenditure on education
and the value of GDP of the country.
KEY WORDS: education, economic growth, regression analysis, European Union, BRICS
Introduction
Education is the process of personality change in the desired direction by adopting
different content depending on the age and needs of individuals. Education includes
teaching, in addition to educational facilities, depending on the age and needs of individuals.
Education is the process by which society transmits accumulated knowledge, skills and
values from generation to generation. In the old societies, only a small number of people,
especially those who had the money or the time, were educated. Then the religious
dignitaries were often the only literate group, who used the knowledge to read and interpret
religious texts.
Education in its modern form involves teaching in specially constructed buildings. This
form of teaching began to grow gradually, especially after the Industrial Revolution. The
process of industrialization and urban expansion has caused the need for special education.
People today are working in many professions and use a variety of expertise, so it is not
possible to transfer knowledge from parent to child, as it was in old times.
1Kralja Petra Prvog num.3, 37000 Kruševac, zoranzoca@gmail.com
2Scholarship holder from the Ministry of Education, Science and Technological Development of Serbia
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Economic Analysis (2015, Vol. 48, No. 1-2, 19-38)
Knowledge is now the main source of long-term economic growth of each of the world
economies. Modern tendencies of development in market economies show that education
and investment in human resources are among the priorities of the national strategy and
national policy, economic and technological progress. Trends in investment in human capital
and knowledge lead to a revision of economic theory and models. Economists are still
looking for the basics of economic growth. The traditional "production function" focused on
labor, material, capital and energy as the main factors. Knowledge and technology are
external factors that impact on production. Now analytical approaches have been developed
so that knowledge can be included directly in the production function. Investment in
knowledge may increase the production capacity more than any other factor of production
and to transform them into new products and processes. Because these investments in
knowledge characterized by an increase (rather than decrease) in rate of return on
investment, they are the key to long-term economic growth.
The state plays a very important role in the field of education. Education is a big item in
the expenditure budget of modern states. Jadranka Đurović-Todorović and Marina Đorđević
(2010) note that in some countries even though the state is able to provide funds for
educational institutions, most of the education is provided by private schools, especially
those belonging to churches.
Education is subject to permanent change. The sudden change of paradigm leaves little
time to adjust. However, there are a few problems in education changes, mostly relating to
how to preserve the good values from the previous education system and how to align the
education system with the needs of the modern economy and society. Today in Serbian
education system a major challenge by Đurović-Todorović and Đorđević (2010) is
harmonizing the educational profiles curricula with labor market needs.
The aim of this paper is to find an empirical relationship between the values of GDP and
public expenditure on education and to what extent public spending on education to
economic growth in the example of the European Union and BRICS and to compare.
Education as an important factor for economic growth and development of
countries
The importance of education for economic development was first spotted by father of
economics, Adam Smith. Adam Smith represented the idea of specialization of labor.
According to Smith, the amount of annual products of a nation depends on two factors: the
amount of labor employed in the production and productivity of labor. According to Smith,
the first factor is of lesser importance than the other factors, as can be seen from the fact that
people in earlier times lived much poorer than modern people, even though the percentage
of the employed labor was much higher. Smith primarily indicates the importance of the
division of labor, as well as first-rate factor increase in national wealth. Obrad Blagojević and
Marko Sekulić (1990) note that many economists believe that the idea of division of labor is
one of his greatest contributions to economic science.
From the above it can be concluded that it is necessary to invest resources to people who
are employed to train and educate to work in certain professions. Therefore, it is very
important to invest in education. Even in some texts, lectures or videos on the internet we
Tomić, Z., Analysis of the Impact of Public Education, EA (2015, Vol. 48, No. 1-2, 19-38) 21
can hear that the modern school was specifically made for the needs of industrialization. In
fact, if you compare schools have classrooms that are like production facilities in the
factories, the bell that marks the beginning and end of classes, such as in factories that marks
the beginning and end of the work shift, the students are divided by grade, as in factories for
the production facilities, and students in schools are doing exactly what their task is, as in
factories where each plant has a specific role in the production process.
Adolph Wagner was probably the first economist to recognize the positive correlation
between economic growth and the growth of government activity. As Magnus Henrekson
(1993) pointed out, Wagner saw three major reasons for the increasing role of the state. First,
industrialization and modernization would lead to an increase in private activity.
Expenditures for law and order, as well as contractual enforcement should be increased.
Second, the increase in real income will lead to the expansion of income elastic of "cultural
and social welfare" expenses. Wagner said that the education and culture are two areas in
which the government is a better controller and executor than the private sector. Dipendra
Sinha (1998) note that natural monopolies like railroads must be controlled by the
government, because private companies are not able to run these monopolies effectively. For
private companies it is impossible to raise huge finances that are necessary for the
development of natural monopolies.
Problem of the impact of public expenditure in education many theorists have dealt with,
and this topic now occupies one of the main topics in economic research. A lot of empirical
studies have attempted to examine the relationship between human capital investment and
economic growth. Sayantan Ghosh Dastidar, Sushil Mohan and Monojit Chatterji (2013) in
their work present that relationship is tested in countries such as the United States
(Jorgenson and Fraumeni), and Pakistan (Aziz Khan and Aziz), Tanzania and Zambia (Jung
and Thorbecke), Nigeria (Ogujiuba and Adeniii) and India (Chandra) and that results from
these papers suggest that expenditure on education affects economy growth positively.
Fiszbein and Psacharopoulos conducted a study to assess the effects of educational
investment in Venezuela and found that investments in primary education had the largest
impact on growth and investment in higher education yields the lowest among the three
levels of education. Distidar,Mohan and Chatterji (2013) found in India that investing in
education is a necessary but not a significant condition for achieving economic growth.
Other factors have a significant impact on economic growth in addition to education.
Oluwatobi Stephen and Ogunrinola Oluranti (2011) for Nigeria found that there is a positive
relationship between the growth of expenditures for education and economic growth using
an expanded model of economic reproduction, where they add to the analysis impact of
costs of education and health care. Dipendra Sinha (1998) found in Malaysia that there is a
long-term relationship between the cost of education and economic growth, but that there is
no mutual relationship between the increase in the cost of education and economic growth.
Avina Sabah Idrees and Muhammad Wasif Siddiqi (2013) based on panel analysis found that
there is a positive relationship between the rising cost of education and economic growth,
and there is the effect of reaching the developed economies based on the investment in
education. In their analysis they observed countries UK, USA, Canada, Germany, France,
Italy and Japan, on the one hand, and Pakistan, India, China, Turkey, Russia, Poland and
South Africa, on the other hand. Abhijeet Chandra (2010) found that India’s boom in
software industry experienced probably due to the huge investments in the 1950s and 1960s
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Economic Analysis (2015, Vol. 48, No. 1-2, 19-38)
in education, particularly in technical sciences. There are also works like and Nurudeen
Usman and Belgrave and Craigvell, which found that the impact of education expenditures
on growth is negative.
In addition to studying the impact of the increase in public expenditure of education to
economic growth, there are works such as Michel Beine et.al. (2001) dealing with the
problem of brain drain and its impact on economic growth. This is one of the big problems
for the growth of the economy of countries like Serbia.
Theories of economic growth and Lucas' model
Dragan Kitanović and Nataša Golubović (2006) define economic growth as the increase of
the potential products of an economy, and moving to the right of its production possibilities
curve. Economic growth can be quantified, primarily by calculating the growth rate of gross
domestic product, growth rate of GDP per capita, national income per capita and etc. The
theory of economic growth has occupied an important place in classical economic theory.
Within the classical aproach there are three main factors of economic growth: labor, land and
capital. Economists of classical school did not take in account technological progress, as well
as the development of human capital, which is one of the main objections to their theory.
According to Marxist school on economic growth was influenced by a number of variables,
but chief among them was the rate of profit. For Marx it was the constant tendency of capital
accumulation and a steady increase in the organic composition of capital, which is not
accompanied by a corresponding increase of workers income.
Neoclassical growth model is based on the model of the economy in which production is
carried out with the use of capital and labor. Also taking into account the progress of
technology, but which has been conditioned by exogenously. This theory has experienced
criticism primarily by post-Keynesians, but the biggest criticism was the observation of
technological progress as exogenous factors of economic growth. Schumpeter was
particularly emphasized the importance of investments to improve the quality of capital
goods, ie. innovation. The implementation of "new combinations" of resources is the primary
force that encourages economic growth.
Keynes represented the view that public expenditure as an exogenous factor can be used
as a policy tool to promote economic growth. Public expenditure can positively contribute to
economic growth. Thus, the increase in government spending is likely to lead to increased
employment, profitability and investment through multiple effects on aggregate demand. As
a result, government spending increases aggregate demand, which causes increased
production depending on the expenditure multiplier.
The new theory is "endogenous growth theory" which differs from the neoclassical
theory, because assuming that the technological change endogenously conditioned, able to
explain the continued growth of per capita income in some countries, on the one hand, and
persistent survival disparity in the level of pre capita income among countries, on the other
hand. The basic model of "endogenous growth" according to Kitanović and Golubović (2006)
includes human capital as a separate factor in the production function. Investment in
education by the state, participating in the creation of an adequate educational program
surely is a key factor for improving human capital, which leads to increased productivity
and getting the necessary technological innovation to further economic growth.
Tomić, Z., Analysis of the Impact of Public Education, EA (2015, Vol. 48, No. 1-2, 19-38) 23
Lucas, along with Romero, is one of the creators of the theory of endogenous growth. In
Lucas' model, human capital is seen as a factor of production and knowledge is central to
accelerating economic growth. According to Lucas' model engine of economic growth is
human capital. People can use their time for work and training (i.e., research and practice).
The relationship between these activities to individuals in an economy to make depends on
the institutional structure and characteristics of the labor market and the economy.
In this paper we performed a quantitative analysis of the impact of public spending on
education in the economic growth of the economy in the example of the European Union,
USA and Japan, as the largest economies in the world.
Model
In research is used a model that is derived from the classical production function. In this
case, the movement of the value of production in the economy depending on the cost of
public education is observed.
f(EDU) =Y (1)
where Y is a production function of one of the country, and EDU represents public
expenditure on education in the country. When this model is transformed into logarithmic
from (1):
µββ ++= )log( )log( 10 EDUGDP (2)
where 0β is constant intercept term, 1β slope coefficient and µ is error. Slope coefficient tells
us how much it will increase the value of GDP if we increase the value of public spending on
education. This paper uses costs of the public sector, because the private sector costs difficult
to measure and obtain the necessary data, and because in most countries the greatest interest
in investing in education is the state, and it bears most of the costs.
In this paper, the analysis is performed on the European Union and 28 member states, for
BRICS countries and Serbia. It also provides an overview of information on investing
countries in different levels of education. The regression analysis was applied, which was
made in the program ORIGIN 9.
Analysis of the model
The analysis of public expenditure on education in the EU Member States and
the European Union as a whole
In the countries of the European Union knowledge-based economy is a strategic task. The
Bologna declaration on higher education from June 1999 marked the beginning of a new
enhanced European cooperation. Đurović-Todorović and Đorđević (2010) say that
educational system of each country can be divided into three main sectors:
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Economic Analysis (2015, Vol. 48, No. 1-2, 19-38)
• public education
• private education in which the state participates with 50% and
• private education (independent schools)
In the European Union education is the responsibility of the Member States. EU
institutions have importance in supporting of education. According to Article 165 of the
Treaty on the Functioning of the European Union, the Community will contribute to the
development of quality education by encouraging cooperation between Member States,
through activities such as promoting the mobility of citizens, designing joint study
programs, establishing networks, exchanging information or teaching languages of the
European Union. The contract includes a commitment to promote lifelong learning for all
citizens of EU.
The EU funds educational, professional and public construction programs that encourage
EU citizens to seize the opportunities offered by the EU to its residents to live, learn and
work in other countries. The most famous of these is the Erasmus program, under which
more than two million students have participated in the inter-university exchanges and
mobility in the last 20 years. Since 2000, awareness of the importance of education and
training in order to exercise economic and social objectives, the EU member states have
started to work together to achieve a series of 13 specific objectives in the field of education.
This is called the Education and Training 2010 program. Sharing good practices by
participating in peer education activities, by setting benchmarks and monitoring progress of
key indicators, the 28 member countries aim to respond to coherent common challenges,
while retaining their individual sovereignty in the area of educational policy. The European
Union is also a partner in a variety of intergovernmental projects, including the Bologna
process which aims to create a European Higher Education Area by harmonizing academic
degree standards and structures, as well as academic quality assurance standards across the
EU Member States and in other European Countries3.
Main education priorities of the EU countries are:
• strengthening vocational education and training,
• increase transparency of professional education and training through the
implementation and rationalization of information networks,
• improving policies, systems and practices in the approach to learning, the
professional education and training,
• promote cooperation in assurance of quality in education,
• supporting the professional development of staff, etc.
For the analysis of the European Union we used the data obtained from Euro Stat of the
GDP values for the period from 2002 to 2011, as well as the amount of public expenditure on
education for the period 2002 - 2011 expressed as a percentage of GDP. The used data are
shown in table 1.
3
Tomić, Z., Analysis of the Impact of Public Education, EA (2015, Vol. 48, No. 1-2, 19-38) 25
Table 1.GDP and public expenditure on education for EU, 2002 - 2011
Year
GDP
(in mil €)
Public
expenditure on
education (%
GDP)
Public
expenditure on
primary
education
(% GDP)
Public
expenditure on
secondary
education
(% GDP)
Public
expenditure on
higher
education
(% GDP)
2002 9,983,702.30 5.00 1.13 2.27 1.12
2003 10,151,451.90 5.03 1.15 2.29 1.11
2004 10,658,018.60 4.95 1.14 2.23 1.10
2005 11,128,703.00 4.92 1.13 2.20 1.12
2006 11,764,657.30 4.91 1.15 2.17 1.10
2007 12,473,648.90 4.92 1.15 2.17 1.11
2008 12,548,545.70 5.04 1.17 2.22 1.14
2009 11,815,746.60 5.38 1.24 2.39 1.21
2010 12,337,150.70 5.41 1.23 2.37 1.25
2011 12,711,206.20 5.25 1.19 2.23 1.27
Source: Euro Stat http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/, data processed
by author (accessed October 1, 2014)
Based on the obtained data it can be concluded that by 2008 the average of 5% of GDP for
education was used to finance in 28 countries members of the European Union. Since 2009,
after the economic crisis, EU has increased the allocation of funds for education, which may
be related to the importance of education to obtain the competitive advantage of the EU
Member States in relation to the rest of the world economy to recover from the economic
crisis. In addition that is the period when there was an increase in the unemployment rate in
all EU member states. Most of the funds were allocated for secondary education (2.17 to
2.39%), which indicates the importance of this level of education. At the secondary level of
education young people gain expertise in areas that will be in their professional career to
deal with, but also in that period they become capable of working. For basic and higher
education almost the same amount of fund is used. The largest expenditure on secondary
education can be explained by the fact that the present system of private financing of
education of young people and that higher education is not compulsory. EU aims to reach by
2020 40% of the population are higher educated, and therefore should not be surprising that
there is a growing trend when it comes to public funding of higher education.
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Economic Analysis (2015, Vol. 48, No. 1-2, 19-38)
Figure 1. Graphic of GDP amount and cost of education in the EU 28 per year
2002 2004 2006 2008 2010 2012
0
140000
280000
420000
560000
10000000
12000000
14000000
16000000
18000000
20000000
GDP
Public education expenses
Public primary education expenses
Public secondary education expenses
Public higher education expenses
M
ill
io
n
€
Year
Application of the model in case of the European Union and the member states
of the European Union
The analysis starts from the null hypothesis, which states that the total value of public
education spending does not significantly affect the value of the observed GDP of the
country. The analysis used the logarithmic values of the GDP of the European Union and the
logarithm of the absolute value of the principal amount of expenditure for the period 2002 -
2011. By applying multiple regression analysis of the model (2) we obtained the following
values of the parameters:
Table 2. The parameter values of the regression analysis for EU 28
Parameter Value Error t-statistics Probability
0β 2.58353 0.52380 4.93232 0.0012
1β 0.77645 0.09082 8.54894 0.0000
R 0.94939
Source:Data processed by author from
EuroStathttp://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/, (accessed October 1,
2014)
The obtained values tell us that there is a positive correlation between the observed value
and the value of investments in education significantly affects the value of GDP for the EU28.
The probability of t-value of the regression coefficient is 0.0000, which is less than the
significance level of 0.05, which confirms that the costs of education significantly affect the
value of the observed GDP of the country; in this case we reject the null hypothesis. The
value of the parameter tells us that if there is an increase in expenditure on education by 1%
would be an increase in log (GDP) of the EU 28 to 0.77%. The coefficient of determination
further confirms the high correlation between the observed size and degree of correlation
observed data.
The following table gives a presentation of the obtained values of parameters for each
member country of the European Union observed individually. We apply the same method
Tomić, Z., Analysis of the Impact of Public Education, EA (2015, Vol. 48, No. 1-2, 19-38) 27
and logarithmic values for the amount of the GDP of the public expenditure on education.
Analysis was carried out in the program ORIGIN 9.
Table 3. The values of the parameters of the regression analysis for the member states of the European
Union
Country/period Parameter Value Error t-statistics Probability
Austria
(1995-2011)
0β 2.42007 0.59208 4.08741 0.0001
1β 1.04697 0.06244 16.76707 0.0000
R 0.97260
Belgium
(2001 - 2011)
0β 5.17062 0.48839 10.58709 0.0000
1β 0.75814 0.04947 15.32444 0.0000
R 0.95899
Bulgaria
(1992 - 2011)
0β 3.81162 0.38295 9.9532 0.0000
1β 0.91115 0.05495 16.58232 0.0000
R 0.98403
Czech Republic
(1996 - 2011)
0β 3.41425 0.31093 10.98091 0.0000
1β 0.97075 0.03766 25.77397 0.0000
R 0.98963
Denmark
(1995 - 2011)
0β 3.60350 0.44676 8.06584 0.0000
1β 0.88539 0.04627 19.13432 0.0000
R 0.98012
Estonia
(1993 - 2011)
0β 2.57688 0.18457 13.96168 0.0000
1β 1.05423 0.03076 34.27395 0.0000
R 0.99284
Finland
(1991 - 2011)
0β 2.02215 0.49168 4.11274 0.0006
1β 1.07870 0.05435 19.84583 0.0000
R 0.97672
France
(1991 - 2011)
0β 2.63329 0.39265 6.70644 0.0000
1β 1.01830 0.03456 29.46617 0.0000
R 0.98923
Greece
(1995 - 2005)
0β 5.53809 0.28939 19.1369 0.0000
1β 0.74186 0.03426 21.65679 0.0000
R 0.99054
Netherland
(1991 - 2011)
0β 4.41575 0.29019 15.21652 0.0000
1β 0.85233 0.02900 29.38867 0.0000
R 0.98918
Croatia
(2002 - 2011)
0β 4.83044 0.21221 22.76285 0.0000
1β 0.77851 0.02882 27.01407 0.0000
R 0.99456
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Economic Analysis (2015, Vol. 48, No. 1-2, 19-38)
Country/period Parameter Value Error t-statistics Probability
Ireland
(1995 - 2011)
0β 4.67164 0.66186 7.05836 0.0000
1β 0.80914 0.07614 10.62638 0.0000
R 0.93954
Italy
(1991 - 2011)
0β 0.91832 0.90234 1.01771 0.3216
1β 1.19519 0.08236 14.51145 0.0000
R 0.95773
Cyprus
(1995 - 2011)
0β 5.05524 0.13218 38.24534 0.0000
1β 0.65173 0.01991 32.72912 0.0000
R 0.99307
Latvia
(1992 - 2011)
0β 2.90361 0.19899 14.59143 0.0000
1β 0.99763 0.03223 30.95326 0.0000
R 0.99074
Lithuania
(1993 - 2011)
0β 2.95616 0.18844 15.68783 0.0000
1β 0.99680 0.02856 34.90756 0.0000
R 0.99310
Luxembourg
(1995 - 2011)
0β 0.99767 0.46843 2.12981 0.0546
1β 1.33602 0.06783 19.69685 0.0000
R 0.98488
Hungary
(1992 - 2011)
0β 2.70274 0.42606 6.34349 0.0000
1β 1.02995 0.05301 19.42903 0.0000
R 0.97698
Malta
(1998 - 2011)
0β 5.83850 0.30448 19.17522 0.0000
1β 0.47900 0.05441 8.80325 0.0000
R 0.93055
Germany
(1999 - 2011)
0β 6.89314 0.86364 7.98151 0.0000
1β 0.66907 0.07465 8.96261 0.0000
R 0.93785
Poland
(1995 - 2011)
0β 3.42800 0.27239 12.58510 0.0000
1β 0.95149 0.02926 32.51554 0.0000
R 0.99298
Portugal
(1995 - 2011)
0β 2.29273 0.42223 6.93282 0.0000
1β 1.00085 0.04746 21.08611 0.0000
R 0.98355
Romania
(1999 - 2011)
0β 4.40787 0.39950 11.03346 0.0000
1β 0.86593 0.05117 16.92169 0.0000
R 0.98465
Slovakia
(1993 - 2011)
0β 2.57600 0.25723 10.01422 0.0000
1β 1.08452 0.03613 30.01596 0.0000
Tomić, Z., Analysis of the Impact of Public Education, EA (2015, Vol. 48, No. 1-2, 19-38) 29
Country/period Parameter Value Error t-statistics Probability
R 0.99070
Slovenia
(2001 - 2011)
0β 1.94547 0.63310 3.07294 0.0133
1β 1.12505 0.08501 13.23465 0.0000
R 0.97526
Spain
(1992 - 2011)
0β 3.21737 0.41869 7.68433 0.0000
1β 0.98837 0.04041 24.46054 0.0000
R 0.96917
Sweden
(1991 - 2011)
0β 1.56319 0.42933 3.64099 0.0017
1β 1.10939 0.04369 25.38963 0.0000
R 0.98558
United
Kingdom
(1991 - 2011)
0β 3.80688 0.57116 6.66518 0.0000
1β 0.92427 0.05102 18.11455 0.0000
R 0.97225
Source: Data processed by author from
EuroStathttp://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/ (accessed October 1, 2014)
Based on the analysis, it can be concluded that the conclusions that are valid for the
European Union apply to the EU's member states. The correlation coefficients (R) range in
values of 0.95 to finding indicating a high correlation observed data and the positive value of
correlation suggests that changes in the value of public expenditure on education has a
positive impact on the change in GDP observed countries. The values for all the countries
under consideration are statistically significant because the probability of t-value is less than
0.05.For countries such as Italy, Luxembourg probability value of t-value for the parameter
βo is greater than 0.05.
Analysis of public spending on education and model in the BRICS countries
BRICS is the English abbreviation and economic term that refers to the growing
development of the economic potential of Brazil, Russia, India, China and South Africa.
Implicitly, concerns the economic alliance of these complementary economies. The term was
introduced by Jim O'Neill of the Corporation for the global financial research Goldman
Sachs, and was quickly accepted by the public, especially the media, to the extent that the
majority of news sources from global finance used without much explanation. The meeting
of officials of these countries, held in the summer of 2008 in Yekaterinburg, called the BRIC
summit. The group originally consisted of Brazil, Russia, India and China. South Africa is a
member of this group of 13 April 2011.
Below will be analyzed for each country individually.
In the analysis of the contribution of public expenditure in the case of Brazil was
observed period from 2004 - 2011.
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Economic Analysis (2015, Vol. 48, No. 1-2, 19-38)
Table 4. GDP and public expenditure on education in Brazil, 2004 - 2011
Year GDP (in mill. $) Public expenditure on education (% GDP)
2004 663,760.34 4.0
2005 882,185.70 4.5
2006 1,088,916.82 5.0
2007 1,366,824.00 5.1
2008 1,653,508.56 5.4
2009 1,620,188.06 5.6
2010 2,143,067.87 5.8
Source: The World Bank
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default (accessed
October 1, 2014)
Figure 2. Graphic of GDP amount and cost of education in Brazil by year
2004 2005 2006 2007 2008 2009 2010
0
20000
40000
60000
80000
100000
120000
500000
1000000
1500000
2000000
2500000
M
ill
io
n
$
Year
GDP
Public education expenses
In percentage terms, Brazil set aside 5.06% of GDP for education, which is the average of
the European Union. In the reporting period it can be observed upward trend in
expenditures for education, both in absolute terms and in percentage values of the GDP of
Brazil. It can be said that investment in education is certainly one of the key factors that led
Brazil to the sixth position in the development of economy in the world.
The analysis used the logarithmic values of the GDP of Brazil and the logarithmic values
of absolute principal amount of expenditure for the period 1995 - 2010. By applying multiple
regression analysis and the model (2) in the above examples are obtained the following
values of the parameters.
Table 5. The values of the parameters of the regression analysis for Brazil
Parameter Value Error t-statistics Probability
0β 5.61954 0.15202 36.96493 0.0000
1β 0.76147 0.01425 53.46357 0.0000
R 0.99808
Source: Data processed by author from The World Bank
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default (accessed October
1, 2014)
Tomić, Z., Analysis of the Impact of Public Education, EA (2015, Vol. 48, No. 1-2, 19-38) 31
The obtained values tell us that there is a positive correlation between the observed value
and the value of his investments in education significantly affects the value of GDP for
Brazil. The probability of t-value of the regression coefficient is 0.0000, which is less than the
significance level of 0.05, which confirms that the costs of education significantly affect the
value of the observed GDP of the country. The value of the parameter tells us that if there is
an increase in expenditure on education by 1% would be an increase in log (GDP) of Brazil
by 0.76%. The coefficient of determination confirms that there is a positive correlation
between the observed data.
In the analysis of the contribution of public expenditure in the case of India was observed
period from 2003 - 2006.
Table 6. GDP and public expenditure on education in India, 2003 - 2006
Year GDP (in mill. $) Public expenditure on education (% GDP)
2003 618,356.47 3.6
2004 721,585.61 3.3
2005 834,215.01 3.1
2006 949,116.77 3.1
Source: Data processed by author from The World Bank
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default (accessed
October 1, 2014)
Figure 3. Graphic of GDP amount and cost of education in India by year
2003 2004 2005 2006
0
10000
20000
30000
600000
700000
800000
900000
1000000
M
ill
io
n
$
Year
GDP
Public education expenses
In percentage terms, India set aside of 3.3% of GDP for education, which is below the
average of the European Union and Brazil. In the reporting period it can be observed
upward trend in the expenditures for education in absolute terms. In the analysis of the
applicability of the model were used logarithmic values of GDP India and logarithmic values
of absolute principal amount of expenditure for the period 1997 - 2011. By applying multiple
regression analysis and the model is presented by (2) in the above examples are obtained the
following values of the parameters.
32
Economic Analysis (2015, Vol. 48, No. 1-2, 19-38)
Table 6. The values of the parameters of the regression analysis for India
Parameter Value Error t-statistics Probability
0β 3.18113 0.85151 3.73588 0.0047
1β 1.01915 0.08348 12.20772 0.0000
R 0.97111
Source: Data processed by author from The World Bank
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default (accessed October
1, 2014)
The obtained values tell us that there is a positive correlation between the observed value
and the value of his investments in education significantly affects the value of the GDP of
India. The probability of t-value of the regression coefficient is 0.0000, which is less than the
significance level of 0.05, which confirms that the costs of education significantly affect the
value of the observed GDP of the country. The value of the parameter tells us that if there is
an increase in expenditure on education by 1% would be an increase in log (GDP) of India
for 1.02%. The coefficient of determination confirms that there is a positive correlation
between the observed data.
In the analysis of the contribution of public expenditure in the case of South Africa was
observed period from 1999 - 2011.
Table 7. GDP and public expenditure on education in South Africa, 1999-2011
Year GDP (in mill. $) Public expenditure on education (% GDP)
1999 133,183.58 6.0
2000 132,877.64 5.6
2000 118,478.99 5.3
2001 111,100.86 5.2
2002 168,219.32 5.1
2003 219,092.94 5.3
2004 247,051.56 5.3
2005 261,007.04 5.3
2006 286,171.83 5.2
2007 273,141.75 5.1
2008 284,183.10 5.5
2009 365,208.43 6.0
2010 403,894.32 6.2
2011 133,183.58 6.0
Source: Data processed by author from The World Bank
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default (accessed
October 1, 2014)
Tomić, Z., Analysis of the Impact of Public Education, EA (2015, Vol. 48, No. 1-2, 19-38) 33
Figure 4. Graphic of GDP amount and cost of education in South Africa by years
1998 2000 2002 2004 2006 2008 2010 2012
0
5000
10000
15000
20000
25000
100000
150000
200000
250000
300000
350000
400000
450000
M
ill
io
n
$
Year
GDP
Public education expenses
In percentage terms, South Africa invests 5.5% of GDP for education, which is the
average of the European Union. In the reporting period it can be observed upward trend in
the expenditures for education in absolute terms. In the analysis of the applicability of the
model were used logarithmic values of the GDP of South Africa and the logarithmic values
of absolute principal amount of expenditure for the period 1991 - 2011. By applying multiple
regression analysis and the model (2) in the above examples are obtained the following
values of the parameters.
Table 8. The values of the parameters of the regression analysis for South Africa
Parameter Value Error t-statistics Probability
0β 3.04033 0.25257 12.03774 0.0000
1β 0.98389 0.02680 36.70966 0.0000
R 0.99448
Source: Data processed by author from The World Bank
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default (accessed October
1, 2014)
The obtained values tell us that there is a positive correlation between the observed value
and the value of his investments in education significantly affects the value of GDP for South
Africa. The probability of t-value of the regression coefficient is 0.0000, which is less than the
significance level of 0.05, which confirms that the costs of education significantly affect the
value of the observed GDP of the country. The value of the parameter tells us that if there is
an increase in expenditure on education by 1% would be an increase in log (GDP) of South
Africa by 0.98%. The coefficient of determination confirms that there is a positive correlation
between the observed data.
In the analysis of the contribution of public expenditure in the case of Russia was
observed period from 2000 - 2006.
34
Economic Analysis (2015, Vol. 48, No. 1-2, 19-38)
Table 9. GDP and public expenditure on education in Russia, 2000 - 2006
Year GDP (in mill. $) Public expenditure on education (% GDP)
2000 259.708,50 2.9
2000 306,602.67 3.3
2001 345,110.44 3.5
2002 430,347.77 3.4
2003 591,016.69 3.5
2004 764,000.90 3.8
2005 989,930.54 3.9
2006 259,708.50 2.9
Source: Data processed by author from The World Bank
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default (accessed
October 1, 2014)
Figure 5. Graphic of GDP amount and cost of education in Russia by years
2000 2001 2002 2003 2004 2005 2006
0
5000
10000
15000
20000
25000
30000
35000
200000
400000
600000
800000
1000000
M
ill
io
n
$
Year
GDP
Public education expenses
In percentage terms in Russia 3.4% of GDP is allocated for education, which is well below
the EU average. In the observed period upward trend in the allocation of funds for education
in absolute terms can be seen. In the analysis of the applicability of the model were used
logarithmic values of GDP of Russia and the logarithmic values of absolute principal amount
of expenditure for the period 2000 - 2008. By applying multiple regression analysis and the
model (2) in the above examples are obtained the following values of the parameters.
Table 10. The values of the parameters of the regression analysis for Russia
Parameter Value Error t-statistics Probability
0β 4.70764 0.19903 23.65263 0.0000
1β 0.86191 0.02010 42.89189 0.0000
R 0.99837
Source:Data processed by author from The World Bank
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default (accessed October
1, 2014)
Tomić, Z., Analysis of the Impact of Public Education, EA (2015, Vol. 48, No. 1-2, 19-38) 35
The obtained values tell us that there is a positive correlation between the observed value
and the value of his investments in education significantly affects the value of GDP for
Russia. The probability of t-value of the regression coefficient is 0.0000, which is less than the
significance level of 0.05, which confirms that the costs of education significantly affect the
value of the observed GDP of the country. The value of the parameter tells us that if there is
an increase in expenditure on education by 1% would be an increase in log (GDP) of Russia
by 0.86%. The coefficient of determination confirms that there is a positive correlation
between the observed data.
In the analysis of the contribution of public expenditure in the case of China was
observed period from 1992 - 1996.
Table 11.GDP and public expenditure on education in China, 1992 - 1996
Year GDP (in mill. $) Public expenditure on education (% GDP)
1992 422,660.55 1.7
1993 440,501.21 1.7
1994 559,224.20 2.0
1995 728,007.55 1.9
1996 856,084.63 1.9
Source: Data processed by author from The World Bank
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default (accessed
October 1, 2014)
Figure6.Graphic of GDP amount and cost of education in China by years
1992 1993 1994 1995 1996
0
2000
4000
6000
8000
10000
12000
14000
16000
300000
400000
500000
600000
700000
800000
900000
M
ill
io
n
$
Year
GDP
Public education expenses
In percentage terms in China allocates an average of 1.84% of GDP for education. In the
observed period can be observed upward trend in the allocation of funds for education in
absolute terms. In the analysis of the applicability of the model were used logarithmic values
of the GDP of China and the logarithmic values of absolute principal amount of expenditure
for the period 1992 - 1999. By applying multiple regression analysis and the model (2) in the
above examples are obtained the following values of the parameters.
36
Economic Analysis (2015, Vol. 48, No. 1-2, 19-38)
Table12. The values of the parameters of the regression analysis for China
Parameter Value Error t-statistics Probability
0β 4.98414 0.42257 11.79476 0.0000
1β 0.89458 0.04467 20.02555 0.0000
R 0.99382
Source: Data processed by author from The World Bank
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default (accessed October
1, 2014)
The obtained values tell us that there is a positive correlation between the observed value
and the value of his investments in education significantly affects the value of GDP for
China. The probability of t-value of the regression coefficient is 0.0000, which is less than the
significance level of 0.05, which confirms that the costs of education significantly affect the
value of the observed GDP of the country. The value of the parameter tells us that if there is
an increase in expenditure on education by 1% would be an increase in log (GDP) of Russia
by 0.89%. The coefficient of determination confirms that there is a positive correlation
between the observed data. It is necessary to get to the more recent data and do further
analysis to confirm the existing result.
In a previous paper Zoran Tomic (2014) found for USA and Japan that null hypothesis is
rejected, i.e. there is a positive correlation between public expenditure on education and
GDP growth. In the case of the US 1% increase in the cost of education is achieved GDP
growth of 0.78% and Japan with increasing the amount of expenditures of 1% leads to an
increase in GDP by 0.81%. Based on this, we can see that the highest growth has India
(1.02%). If we take into account the individual EU member Luxembourg has the highest
growth of 1.33% to 1% of the additional costs in education. Brazil has the smallest growth
with 0.77%, and from the EU is Malta with 0.47% growth.
Conclusion
Knowledge is a key factor for the improvement and development of each of the world
economy. The significance of knowledge and education was spoken by Adam Smith, who
represented need to divide the work among the people. Today, an important question arises
about all these activities, education and the education system to economic growth and
development of each country. Education and the education system helps and contributes to
empower people to work in the economy, but also with the knowledge that they have and
the resources contribute to the technological development that will allow the country's
economy to develop and to have competitive an advantage. Also a big problem today is the
problem of brain drain which is also a challenge for new research in this area.
Based on the analysis for European Union, USA, Japan and BRIKS, it was found that
there is a positive correlation between the amount of public expenditure on education and
economic growth in these countries. It was found that among India in BRIKS group, Italy,
Luxembourg and Slovenia within the EU, achieved the highest economic growth, because a
1% increase in public expenditure on education comes up more than 1% growth in the value
Tomić, Z., Analysis of the Impact of Public Education, EA (2015, Vol. 48, No. 1-2, 19-38) 37
of log (GDP). Observed between groups of the European Union, USA and Japan, the largest
growth is achieved in Japan with 0.87% growth in log (GDP), while the lowest growth is
achieved in EU (as a group), where the increase in expenditure on education by 1%, the
growth of log (GDP) for the 0.77%. In subsequent research should expand the number of
countries that will be covered by the panel and perform analysis among the countries
themselves on the contribution of public expenditure on education to economic growth. It
was also found that most funds allocated for secondary education, which can be explained
by the fact that post-secondary education young people are trained to work in the economy
or for further education.
Among the surveyed countries Malta achieved the lowest growth which can be best
explained by the very size of economy, the structure of the economy, population size and so
on. To further confirm the above results it is necessary to include additional information in
the analysis (the period after 2011 and the period before 1991), which will provide direction
for further research into this issue, as well as the inclusion of other factors that lead to
economic growth of countries (health care costs, the costs of Science, etc.) and thus further
develop the model.
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Conference SCIENCE AND HIGHER EDUCATION IN FUNCTION OF SUSTAINABLE
DEVELOPMENT, Business and Technical College of Vocation Studies, Užice, Serbia.
Analiza uticaja javnih troškova obrazovanja na privredni rast
u Evropske unije i BRIKS zemalja
REZIME – Znanje je jedan od ključnih faktora za razvoj i napredak svake odsvetskih ekonomija.
Počevši sa industrijskom revolucijom, više pažnje i sredstava ulaže se u razvoj obrazovnog sistema.
Ekonomije trebaju da ulože napor i sredstva u obrazovni sistemu koji bi omogućio stanovništvu da se
što bolje pripremi za učešće u ekonomskom životu svoje zemlje. To znači da će ulaganje u obrazovanje i
obuku za rad u privredi i razvoj mladih ljudiza istraživanja, razvoj i bavljenje naukom doprineti
razvoju novih tehnologija i znanja. Razvoj novih tehnologija i znanja doprinosi povećanju
konkurentnosti zemlje na globalnom tržištu. Ovaj rad predstavlja uporednu analizu ulaganja u
obrazovnim sistemima Evropske unije i BRIKS-a, i takođe je pokazano da postoji pozitivna korelacija
između javne potrošnje za obrazovanje i vrednost BDP-a zemlje primenom regresione analize.
KLJUČNE REČI: obrazovanje, ekonomski rast, regresiona analiza, Evropska unija, BRIKS
Article history: Received: 26 March, 2015
Accepted: 3 April, 2015