Background

Interconnection between educational expenditure and economic growth is a subject of great interest for the researcher in most developing nations in the world. This is because public expenditure is one of the key indicators for the development of the nation. The main aim of the study is to find out the relationship between educational expenditure and economic growth.

Method

Structural break analysis with autoregressive distributed lag approach is applied to make a depth analysis between educational expenditure and economic growth of the Southern Asian Countries such as Bangladesh, India, Nepal, Pakistan, Maldives, Bhutan and Sri Lanka from the time period of 1990 to 2022. Other control variables are also used to measure the effect of that such as gross fixed capital formation, labor force participation rate, and trade.

Results

From the structural break analysis, gross domestic product per capita noticed a break for 2008–2010 during the financial crisis and public expenditure on education found its structural break points are prior to 2000. The result of the cointegration test conforms the existence of cointegration among the variables. It is found that for all the eight countries of South Asian countries there is the existence of cointegration among the variables at 1% level of probability. Our results found that the impact of education expenditure has a mixed effects, which represent both positive and negative as well as both short-run and long-run relationship.

Conclusion

As for policy implications, countries should improve the effectiveness of different public policies of education most importantly enrolment sector and skill enhancing sector. Educational systems must adopt such type of initiative which include lifelong learning programs, development of information and communication technology, improvement of teacher efficiency, adult learning, and corelating the education sector with labor market.