Education Spending and Economic Growth: Short- and Long-Term Effects in a Global Panel

Dante Contreras, Arturo J. Galindo & Ignacio Lepe · Review of Development Economics, 2026

Abstract

The role of public education spending in promoting economic growth is widely debated, yet empirical evidence distinguishing short-run from long-run effects remains limited. This paper estimates these effects using a CS-ARDL model with error correction for a global panel of 107 countries (1970–2019), disaggregating spending by primary, secondary, and tertiary levels. A 1% increase in real per capita education expenditure is associated with 0.031% higher long-run output for aggregate spending, 0.019% for both primary and secondary, and 0.013% for tertiary, with significant effects in both the short and the long run. Higher educational achievement, proxied by PISA scores, amplifies the growth impact of spending. These findings underscore the role of education quality in enhancing the productivity of public investment.

Insights

Simulated real GDP per capita response to a 1% permanent increase in government education spending: high-PISA scenario (red) versus world average (blue), by education level. — Same dollar, very different payoff. Each line traces how much GDP per capita rises after a permanent 1% increase in public education spending. In countries that already score about 30% higher on PISA (red), the long-run payoff is roughly three to four times the world average (blue). The takeaway: the *quality* of a school system, not just the size of its budget, is what turns education spending into growth.

Citation

Contreras, D., Galindo, A. J., & Lepe, I. (2026). Education spending and economic growth: Short- and long-term effects in a global panel. Review of Development Economics. https://doi.org/10.1111/rode.70167

@article{contreras2026education,
  author  = {Contreras, Dante and Galindo, Arturo J. and Lepe, Ignacio},
  title   = {Education Spending and Economic Growth: Short- and Long-Term Effects in a Global Panel},
  journal = {Review of Development Economics},
  year    = {2026},
  doi     = {10.1111/rode.70167}
}

Links

Journal article (Review of Development Economics)
Author's manuscript (PDF)
Working paper (IDB Technical Note IDB-TN-3178)

JEL: I25, H52 · Keywords: educational expenditure, economic growth, error correction model