Does public expenditure on education matter for growth in Europe? A comparison between old EU member states and post-communist economies.

This study examines the impact of education on growth in the EU. Public expenditure on education is used as a proxy for investment in human capital. The empirical model is based on the extended Cobb-Douglas production function with three inputs: labour, physical capital and human capital. The results imply that education spending is positively related to growth in the panel of 20 economies investigated. However, the estimated regression coefficient for the education indicator is both significant and robust to structural breaks in data or extreme observations only in the case of the advanced member states. Spending on R&D is also substantially linked to growth. In the case of post-communist countries, the relationship between education and growth is either statistically insignificant or unstable. The partial correlation analysis implies that the effect of education expenditure on growth is related to its impact on labour productivity. [ABSTRACT FROM AUTHOR]