The Strength of Government Education Expenditure: Does it Fuel Sri Lanka’s Economic Growth?

The relationship between public expenditure on education and economic growth in Sri Lanka is a multifaceted and crucial element in shaping the country’s development policies. Economic growth is widely recognized as a key driver in improving the living standards of a nation, providing better employment opportunities, and enhancing overall well-being. On the other hand, educational investment plays a crucial role by equipping the workforce with the necessary skills and knowledge to enhance productivity and foster innovation. While these concepts are theoretically linked, there is a noticeable gap in empirical literature specifically focusing on Sri Lanka, indicating the need for further in-depth analysis in this context. This research investigates the relationship between public expenditure on education and real GDP growth in Sri Lanka from 1989 to 2023. The primary objective was to assess whether public spending on education has a significant impact on the country's economic growth. To explore both the long-run and short-run dynamics, the study employed cointegration analysis, the Vector Autoregression (VAR) model, and the Granger Causality test. The cointegration analysis revealed no long-run cointegration between education expenditure and GDP growth, suggesting that public expenditure on education may not have a sustained impact on economic growth in the long term. In the short run, the Vector Autoregression model showed a positive but statistically insignificant relationship between education expenditure and GDP growth, further corroborated by the Granger Causality test, which indicated no significant predictive power of education expenditure on economic growth. Based on these results, the study concludes that there is no significant relationship between public expenditure on education and economic growth in Sri Lanka during the studied period.