Analyzing Public Education Expenditure and the Quality of Primary Education in Developing Countries

Overview & Synopsis

The purpose of the study was to examine the impact of public education financing on primary education quality in developing countries from 2002 to 2017, using a random effects model with robust standard errors. The results reveal strong evidence of the significantly positive role of public spending on the pupil-teacher ratio. Likewise, we find a non-linear or quadratic relationship between education financing and education quality, captured in a U-shape. We also observe the diminishing marginal returns on education spending, with optimality achieved when the level of educational spending reaches 4.7% of GNI, beyond which its positive impact on education quality disappears. We test for robustness of these findings using the Generalized Method of Moments technique that takes care of endogeneity, as well as the Panel Dynamic Threshold Analysis. The use of alternative education indicators confirmed the latter findings. Additional evidence reveal that while personal remittances and per capita income have a negative and significant effect on the pupil-teacher ratio, and therefore improve education quality, primary school enrollment is adversely associated with primary education quality. These findings call for measures to increase public education financing as well as ensuring efficiency and accountability in the utilization of education resources. The study further underscores the importance of strengthening the remittance-supportive policies and infrastructure to reduce weaknesses like long delays in check clearance, exchange losses, or improper disclosure of transaction costs, which deter inward remittances. At the same time, developing countries need to invest heavily in the education infrastructure and primary teacher training to match the increasing enrolment rates and to counter the negative effects of enrollment on the quality of primary education.