A Report on

Public Expenditure In Education And Economic Growth

2/28/2015

A report on
Public expenditure in education and economic
growth: a case study of Bangladesh
F-413
Course title: Government finance

Submitted to
Taher Jamil
Lecturer
Department Of Finance
Faculty of Business Studies
University Of Dhaka
Date Of Submission: december30, 2014

Submitted by
Group Profile:
Name

Roll

Md. Amir Hamja Nerob

Id. 17-40

Mehedi Hasan Niloy

Id. 17-44

Lutfun Nahar Loona

Id. 17-64

Maruf Ahmed

Id. 17-82

Tanjum Tamanna

Id. 17-87

Letter of Transmittal

Date: February 28, 2015

Taher Jamil
Lecturer
Department of Finance
University of Dhaka

Subject: A Report on Public expenditure in education and economic growth: a case study of
Bangladesh.

Dear Teacher
With due respect this is to inform you that we are the student Department of Finance,
University of Dhaka. Its our pleasure to prepare a report on Public expenditure in
education and economic growth: a case study of Bangladesh Course. Course No. F413. It is very important for us to imply our theoretical knowledge on practical experience.

We would like to request you to accept our report as qualified one for your course
assessment process.

Yours Obedient
Amir Hamja Nerob
17-040
On behalf of the group
..
B.B.A. 17th batch
Department Of Finance
University Of Dhaka

Acknowledgements
We are indebted to many persons for providing us encouragement and support during our learning
and working while making this report and we want to thank these persons.
We are very much grateful to MR. Taher Jamil , our respected course instructor, who assigned us
this challenging work. He always guided us to take and overcome this challenge successfully.
Without his help in every step, it was quite impossible for us to finish this report properly in time.
This report is an accumulation of my endeavor for many days.
We are indebted to all the people, with whom we approached during the various stages of writing
this.

Table of Contents
Introduction......................................................................................................................................7
Review of related literature ..............................................................................................................8
Theories of Public Expenditure and Economic Growth .................................................................. 11
Budgetary allocation in EDUCATION............................................................................................ 12
Trend analysis ................................................................................................................................ 14
Major project taken by Bangladesh Government for the development of Education sector ............ 14
Challenges in developing the education sector of Bangladesh ......................................................... 19
MODEL SPECIFICATION............................................................................................................ 21
Ordinary Least Square Method: ..................................................................................................... 22
Correlation Analysis: ...................................................................................................................... 22
Regression Analysis: ....................................................................................................................... 23
ANOVA Test .................................................................................................................................. 24
Descriptive Statistics ....................................................................................................................... 25
Hypothesis Analysis: ....................................................................................................................... 26
Conclusion: ..................................................................................................................................... 28
Recommendations ....................................................................................................................... 28
Appendix: ....................................................................................................................................... 29
References:...................................................................................................................................... 36

Executive summery
Education is an important determinant of economic growth for any country. On the other hand,
Government budget policy affects the long-term growth rate through decisions on priority based
public spending on different sectors. In our report we investigated the long-run relationship
between public expenditure on education sector and economic growth in Bangladesh. This study
investigates the effects of public expenditure in education on economic growth in Bangladesh
over a period from 1984 to 2013, with particular focus on disaggregated and sectorial
expenditures analysis. Government expenditures are very crucial instruments for economic growth
at the disposal of policy makers in developing countries like Bangladesh.in the first three section
we analysis the theoretical aspects of role of Public expenditure in education and economic growth
and different theories of public expenditure. The next section is provided with regular budgetary
allocation, recent projects taken by the government to improve present educational system and
existing challenges for the improvements and probable solutions to overcome those challenges.
Latter the objective of this study is to determine the effect of public expenditure on economic

growth in Bangladesh An econometric model is applied to the analysis ; Ordinary Least Square
Method. The study used Ex-post facto research design and applied time series econometrics
technique to examine the long and short run effects of public expenditure on economic
growth in Bangladesh. The results indicate that Total Expenditure Education is highly and
statistically significant and have positive relationship on economic growth in Bangladesh in
the long run. Here we incorporated descriptive statistics and correlation analysis which says for
one unit change in the overall educational expense the level of total GDP also increases by
0.992484 unit. So the relation between these two variables is quite perfectly positive. The report
also includes the regression analysis of these two variables. This analysis introduces how two
variables, one independent and the other is dependent, are related to one another by expressing
their relationship through an equation.
The result has an important implication in terms of policy and budget implementation in
Bangladesh. We conclude that economic growth is clearly impacted by factors both
exogenous and endogenous to the public expenditure in Bangladesh.

Introduction
Public intervention in the area of education, particularly elementary education, is universally
accepted. From the lens of education as a fundamental right, such intervention directly follows
from the basic features of the paradigm. Even if an alternative paradigm of a modern welfare state
is preferred, its well-accepted tenets lead to a substantive role of the government in the area of
education. What is required is that the government should be interested in (a) the long-term
increase in the expected income of its citizens; (b) higher growth of the economy; and (c) lower
poverty levels. All three are non-controversial as government objectives. Public pursuance of a
policy of better-educated citizens can pay dividends for all the three stated goals as revealed by
the empirical literature on various aspects of education.
Education has both intrinsic and instrumental value: it is desirable not only for the individual but
also for the society as a whole. Education is a key factor for boosting a countrys economy and is
considered as one of the necessary conditions to achieve better outcomes on social welfare. The
social benefits of education provide a powerful set of arguments in favor of public investment to
achieve the social optimum. As a crucial subject matter of public finance, public expenditure on
education and subsequently economic growth has found much attention of economists and
researchers.
The existing view in modern economic growth theory is that education is an important key to
economic prosperity. On the other hand, Fiscal policy of government affects the long-term growth
rate through decisions on public spending in the process of budget announcement. As education is
an important index of socioeconomic development, public financing on education has been a
priority for governments in developing countries. Bangladesh is one of the developing countries
which is striving to achieve economic goal through reduction of poverty, increasing efficient
manpower and accomplishing social welfare at a greater extent through better public financing
decision. Between the years 2000 to 2009, the annual public expenditure on education was on an
average 2 to 2.5 percent of GDP. During the same period, the share of the government budget
devoted to education was on an average 14.95%.
In Bangladesh, increased investments in education are associated with higher returns in the labor
market and higher productivity in the agriculture sector. If education causes GDP to increase at a
greater extent than the allocation to this sector should also be enhanced. Education is a long term.

Process and therefore its necessary to establish long term relationship between these two
variables. Though a number of research on functional relationship between public spending on
education and economic growth have been conducted in many countries but such type of study
remains absent in Bangladesh. The objective of this study is to determine the long run relationship
between public spending on education and economic growth in Bangladesh.

Review of related literature

The development literature has highlighted the role of education in reducing inequalities that
prevail in many developing societies. Education is both a consumption as well as a capital good,
but the conventional credit market mechanisms do not operate efficiently. Inequalities across
generations can persist if the level of education is correlated with parental income and wealth
(Banerjee and Newman, 2003). This characteristic has been used to justify public intervention in
the provision and financing of education from the equity perspective.
Numerous studies discussed about the relationship of the public expenditure on education and the
economic growth. The size of government expenditures in social sector and its impact on economic
growth has emerged as a major public choice issue facing economies in transition. Blanken au et
al carried out an empirical study on expendituregrowth relationship in the context of an
endogenous growth model. They found that the response of growth to public education expenditure
may be non-monotonic over the relevant range. The relationship depends on the level of
government spending, the tax structure and the parameters of production technologies. The
literature has focused on the link between level of public expenditure on education and economic
growth; majority of the studies deal with endogenously generated economic growth and stress on
the role of human capital accumulation in economic growth. An investment in education is very
beneficial to the society, both at the micro level as well as macro level and affects the economic
growth both directly and indirectly.
Education has high economic value. A considerable part of the communitys wealth must be
invested for the same. Investment in education leads to the formation of human capital, comparable
to physical capital and social capital, and that makes a significant contribution to economic growth
(Dickens et al., 2006; Loening, 2004). The policymakers argued that expenditures in social sector

plays an essential role in the economic development of a country by maintaining law and order,
providing economic infrastructure, harmonizing conflicts between private and social interests,
increasing labor productivity through education and health and enhancing export industries (AlYousif, 2001). Baum and Lin (1993) examined the impact of three different types of government
expenditures on the growth rate of per capita GDP using cross-section data from both developed
and developing countries for the period of 1975-85. This study determined that expenditures on
defense, welfare and education have different impacts on economic growth. The growth rate of
educational expenditures has a significant positive impact on economic growth in all cases. Kevin
(2000) explores the transition mechanism that might link the income inequality and economic
growth. He found that public education expenditures are positively associated with future
economic growth, although the contemporaneous effect upon growth is negative. Barro et al (2001)
examines a panel data of around 100 countries observed from 1965 to 1995 and finds that growth
is positively related to the starting level of average years of school attainment of adult males at the
secondary and higher levels.

Education as an investment secures returns in the form of skilled manpower that geared to the
needs of development, both for accelerating economic development and for improving the quality
of the society (Yogish, 2006). According to Chemingui (2005) an increase in government
expenditure devoted to the three priority areas i.e. agriculture, education, and health will affect the
economy through increase in sectoral or economy-wide total factor productivity (TFP). Kamara et
al. (2007) indicate that public expenditure on education is positively correlated with economic
growth in African countries. Nah (1997) studied the impact of various types of social expenditures
on economic growth by using the 1992 data for 68 countries with the help of rank correlation and
regression techniques. The conclusions through ranking reveal that the advanced countries spend
relatively greater proportions of their public expenditure on health and social security but the
developing countries allocate disproportionately larger amount for educational development.
Ansari and Singh (1997) used annual time series data from 1951 to
1987 to study the relationship between public spending on education and growth in India. They
found that there is no long run relationship between the two. Afzal et al (2010) conducted a study
to investigate short-run and long-run linkage between school education and economic growth in
Pakistan and confirmed the existence of direct relationship between them. In another study

Chandra (2010) made an attempt to explore the causal relationship between government spending
on education and economic growth of India using 1950-2009 data. The study shows that the
direction of causation is from education expenditure to economic growth is not immediate to take
effect, rather it can be said that investment in education is expected to affect economic growth of
a country after some period.

Cross-country studies have tried to quantify the impact of government expenditure in raising
educational and health indicators. The effectiveness and efficiency of government expenditure in
the social sector varies between different geographical regions, and also depends on the stage of
development. Innovative institutional arrangements and alternative financing mechanisms are
being explored in order to supplement public funds, and to improve the effectiveness of the public
resources thus invested.
The framework for this review is predicated on the different strands of research mentioned above.
The literature on the rate of return to education indicates that there is considerable rationale
for investing in education on behalf of both the individual and the society. At the earlier
stages, primary and secondary, the social returns can in some cases exceed private benefits,
strengthening the case for public expenditure.
The human capital thus accumulated impacts positively on productivity, and a higher rate
of growth for the economy, as evidenced by empirical applications of models incorporating
schooling variables in economic growth.
Externalities prevalent in the education sector necessitate intervention by the state in order
to ensure equity and improve outcomes. The literature on effectiveness and efficiency in
public expenditure investigates whether there is any impact on human development
outcomes, and whether further gains can be achieved with better use of resources, with
improved quality.
Finally, the growing literature on service provision and delivery delineates the current state
of the debate on how better institutional arrangements and governance can help achieve the
objective of equitable educational opportunity in terms of provision and access, addressing
some of the inefficiencies of public funding and delivery of education

Theories of Public Expenditure and Economic Growth

This section highlights same basic theories that have been used to support the effects of public
expenditure on economic growth. Such theories amongst others are:

Musgrave Theory of Public Expenditure Growth

This theory was propounded by Musgrave as he found changes in the income elasticity of demand
for public services in three ranges of per capita income. He posits that at low levels of per capita
income, demand for public services tends to be very low, this is so because according to him such
income is devoted to satisfying primary needs and that when per capita income starts to rise above
these levels of low income, the demand for services supplied by the public sector such as health,
education and transport starts to rise, thereby forcing government to increase expenditure on them.
He observes that at the high levels of per capita income, typical of developed economics, the rate
of public sector growth tends to fall as the more basic wants are being satisfied.
The Wagners Law/ Theory of Increasing State Activities
Wagner's law is a principle named after the German economist Adolph Wagner (1835-1917).
Wagner advanced his law of rising public expenditures by analyzing trends in the growth of
public expenditure and in the size of public sector. Wagners law postulates that: (i) the extension
of the functions of the states leads to an increase in public expenditure on administration and
regulation of the economy; (ii) the development of modern industrial society would give rise to
increasing political pressure for social progress and call for increased allowance for social
consideration in the conduct of industry (iii) the rise in public expenditure will be more than
proportional increase in the national income (income elastic wants) and will thus result in a relative
expansion of the public sector. Musgrave and Musgrave (1988), in support of Wagners law,
opined that as progressive nations industrialize, the share of the public sector in the national
economy grows continually.
The Keynesian Theory
Of all economists who discussed the relation between public expenditures and economic growth,
Keynes was among the most noted with his apparently contrasting viewpoint on this relation.
Keynes regards public expenditures as an exogenous factor which can be utilized as a policy

instruments promote economic growth. From the Keynesian thought, public expenditure can
contribute positively to economic growth. Hence, an increase in the government consumption is
likely to lead to an increase in employment, profitability and investment through multiplier effects
on aggregate demand. As a result, government expenditure augments the aggregate demand, which
provokes an increased output depending on expenditure multipliers.
The Solows Theory
Robert Solow and T.W. Swan introduced the Solows model in 1956. Their model is also known
as Solow-Swan model or simply Solow model. In Solows model, other things being equal,
saving/investment and population growth rates are important determinants of economic growth.
Higher saving/investment rates lead to accumulation of more capital per worker and hence more
output per worker. On the other hand, high population growth has a negative effect on economic
growth simply because a higher fraction of saving in economies with high population growth has
to go to keep the capital-labor ratio constant. In the absence of technological change & innovation,
an increase in capital per worker would not be matched by a proportional increase in output per
worker because of diminishing returns. Hence capital deepening would lower the rate of return on
capital.
The Endogenous Growth Theory
The basic improvement of endogenous growth theory over the previous models is that it explicitly tries to
model technology (that is, looks into the determinants of technology) rather than assuming it to be
exogenous. Mostly, economic growth comes from technological progress, which is essentially the ability
of an economic organization to utilize its productive resources more effectively over time. Much of this
ability comes from the process of learning to operate newly created production facilities in a more
productive way or more generally from learning to cope with rapid changes in the structure of production
which industrial progress must imply.

Budgetary allocation in EDUCATION

Budget is the governments most powerful instrument to address development challenges and
ensure effective coverage of quality social services for its citizens. Hence, the Medium Term

Budgetary Framework (MTBF) has set a range of priorities for education. The budgetary allocation
to education partially measures how far these policies and programmers are being translated into
fiscal commitments. Available data reveal commendably that the education sector budget has been
one of the top priorities of the Government of Bangladesh for many years. Education gets the
second largest allocation after public administration

Chart Title

amount

Public spending on education

Government expenditure

1800000000000.00
1600000000000.00
1400000000000.00
1200000000000.00
1000000000000.00
800000000000.00
600000000000.00
400000000000.00
200000000000.00
0.00

year

As shown in Figure, the share of budget of education has been consistently very high and increasing over
time. Even though development budget increased proportionately in provisional budget of per annum it
means that more attention should be paid by the stakeholders to balance the development portion of
education sector budget, which seems to get less priority than recurrent expenditure.

% of public spending of total expenditure

25.00%
20.00%
15.00%
10.00%
5.00%
0.00%

Trend analysis
By analyzing the data we found that the allocation in the educational sector is increasing year to
year. And we also found that with increase in the total budget allocation the contribution of the
educational sector in the overall GDP in also increasing. The following graph shows the trend in
the budget allocation in the education sector.

1800.00%
1600.00%
1400.00%
1200.00%
1000.00%
800.00%
600.00%
400.00%
200.00%
0.00%

From base year 1990 there is an upward trend of expenditure on education sector after 2005 the
expense started to increase in a higher rate.

Major project taken by Bangladesh Government for the development of Education sector

1. Free text book distribution

In the wake of recurring textbook crisis in previous years, the government in 2009 had taken
the decision of free book distribution at both primary and secondary levels. This enables the

students of primary and secondary grades to begin the New Year with new textbooks in their
hands.

2. Investment in Higher education

To increase the opportunity and quality of higher education, Bangladesh govt. has taken the project
of establishing one university at each district. As part of this, the govt. has approved a number of
universities throughout the country. Among them Bangabandhu Sheikh Mujibur Rahman
Agricultural University, Bangladesh University of Textiles, University of Professionals, Barisal
University are worth mentioning. Academic Innovation fund has been created to encourage
research in higher education sector. To promote higher education in private sector, the govt. has
enacted Accreditation Council for Private Universities, Cross Border Higher Education act etc. In
addition, the govt. has constructed a number of libraries, halls, academic building in different
public universities.

3. Female education assistance project

The Female education assistance project in Bangladesh was established to increase the enrollment
of girls in educational institutions, thereby delaying marriage and childbearing. While causality is
difficult to establish, data suggest that the stipend program has contributed to the rise in enrollment
of girls in educational institutions. At present, there is three education assistance projects is
operated by Bangladeshi govt. such as
Higher Secondary Female Stipend Project Female Secondary School Assistance Project Female
Secondary Stipend Project.

4. Multimedia classroom project

The education initiatives by Access to Information Project aim to make teaching and learning more
effective and enjoyable for both students and teachers using ICT. As part of the education reform
driven by the Ministry of Education, a2i through public private partnership has so far established
500 multimedia classrooms in secondary schools and trained about 4500 teachers through 400
trainers of public training institutes.
5. Monthly pay order

The govt. has decided to follow nationalization policy in secondary and higher secondary level
institutions. As part of this, govt. provides monthly Payment Order (MPO) facilities for secondary
school level. Government has raised the number of stipends for school students to 30 lakh from 17
lakh and included 1,624 educational institutions in the monthly payment order (MPO).

6. 11 Project model
To increase the educational facilities to meet the recurring increasing demand in education sector,
govt. has decided to establish 11(Eleven) Higher Secondary Model School (Non-Government) In
06 (Six) Divisions Including Dhaka Metropolitan City.

7. Teaching quality improvement project

Through this project, quality initial and in-service teacher training and continuous professional
development are provided to all eligible teachers of grades 6-10 in government and registered nongovernment secondary schools in Bangladesh. Project activities also improve the organizational
capacity of training institutions and the training infrastructure for secondary school teachers and
administrators, including three under-served areas.

8. Teacher appointment, training and promotion

To reduce the pressure of admission in secondary level, govt. has initiated double shift and has
created 2000 posts for the teachers. In addition, the govt. has amended Bangladesh Civil Service
Recruitment Rules-1981 partially to promote teachers in various posts. The govt. has also initiated
training on Senior Staff Course on Education and Management (SSCEM), Advanced Course on
Education and Management, Training on ICT Application in Institutional Work etc.

9. Infrastructural development
Developing educational infrastructure is crucial for ensuring congenial learning environment,
incentivizing children to enroll and prevent dropouts. The govt. provided Primary Schools
Rebuilding and Reform Project. Under Primary Education Development Project 2, the govt. has

built 40,870 additional classrooms; built 398 primary schools cum cyclone shelters; constructed
23,202 toilets; dug and set up 17,275 deep tube wells; repairing 7,103 primary schools.

10. Policy reforms

The government took a rather giant leap and initiated the formulation of a new education policy,
one that will be more science-based, time befitting and will nurture the creative faculties of the
minds of children. After comprehensive research works, reviews and ratifications, the policy was
formulated in 2010. This education policy received huge acclamation from academics, litterateurs,
students and guardians and is considered the most time-befitting education policy the country ever
had. Besides educating all, the new education policy aims to make sure that they receive quality
education.

11. Inclusive education

To encourage the ultra-poor children in coming to schools, the government has launched school
feeding program in 2100 schools

12. Modernized Textbook

As many as 111 textbooks have been modernized, preschool feeding program has been introduced
and 26,192 primary schools have been nationalized. In a bid to prepare children for the challenges
of a more competitive world in future, the government has introduced two more pre-SSC public
examinations. Primary School Certificate-PSC and Junior School Certificate-JSC and equivalent
Dakhil Certificate Examinations have been introduced.

13. Dynamic website

National Curriculum and Textbooks Board (NCTB)s website has been made more dynamic. All
primary and secondary textbooks can be downloaded in their e-book formats from this platform.
In addition, all schools of different boards are also asked to make their own website.

14. Delivering lessons through broadcast

In order to improve the quality of education in all schools of the country, and as part of a holistic
teaching approach, since 14th June 2011, educational lessons on English, Mathematics and Science

of the best performing public schools are being broadcast in the national television channel,
Bangladesh Television (BTV). Currently, the frequency of the broadcast is three mornings a week
for one hour.

15. ICT education

Bangladesh as a third world country has a great concern over this deficiency and believe that the
digital divide should be reduced so that there will be an economic recovery. Substantial education
has been attached to ICT education in the National Economic policy 2010. Realizing the present
nature of global world order the present Govt. of Bangladesh has recently undertaken a program
named ICT in Education Master Plan (2012-2021) to facilitate the Education Policy 2010. In
addition to that, to make the country a digitized the Govt. has also endorsed The National ICT
Policy 2012. It is expected that the proper implementation of the policies would minimize the
digital divide, ensure participation for all and generate a skilled work force for future. This master
plan along with ICT Policy 2012 will facilitate in the comprehensive use of the ICT in education
and employment generation. This policy framework expected to create the following opportunities.

16. Development of Vocational education

The govt. is working is establish at least one vocational educational institute at every district. The
govt. has also undertaken Skill development project and Skill and Training Enhancement project
to train teachers and started stipend facility for vocational students.

Development budget in Education Sector

Amount in Crore BDT

73984.42

55000
38500 41000
22000 24500 21600 22500 23000
16000 17100 19000

Year

28500

10

12

14

Revenue budget in Education Sector

136383

Amount in Crore BDT

112900
104234
87285
78136
67603
56154.67
50903.11
22692 25307

53846

45410

28969

10

12

14

Year

Challenges in developing the education sector of Bangladesh

The Government of Bangladesh has demonstrated strong commitment to education since

independence by formulating relevant national policies, strategies and laws, and ratifying relevant
conventions and declarations at regional and international levels. As a result, the country has
achieved substantial progress in increasing and sustaining net enrolment in primary schools from
85 per cent in 2000 to 94 per cent in 2010 and achieving gender parity in both primary and
secondary school enrolment. Bangladesh is one of the top performing countries in South Asia after
Sri Lanka that has achieved gender parity in education.

Despite an impressive headway, there are some unfinished and emerging inequities that must be
dealt with to sustain past progress and put the country on the path of middle income growth with

equity. For instance, the issues of quality of learning, attendance of children in pre-primary
schools; attendance, retention and performance of children in primary and secondary schools; and
disparities based on geographic locations are prevailing concerns to government, development
partners, parents and indeed all stakeholders, as articulated in the Primary Education Development
Programmed III (PEDP III).
ACCORDING to Article 17 of our Constitution, all the children of Bangladesh are supposed to
receive full free education up to secondary level. But in reality, it is not so, especially for children
from poorer households in rural areas. Recent survey done by BRAC reveals that poor parents
have to pay bribe at every step of their child's schooling. Such corrupt practice of extorting money
from poor parents prevails among about half of the government schools in the country.
Bangladesh has one of the largest primary education systems in the world, according to the
Directorate of Primary Education (DPE). There are a total of 37,672 government primary schools
in the country with an estimated 10.7 million primary school aged children (6 to10 years). DPE
figures also show that at present, a total of 6,300 primary schools around the country do not have
a headmaster. The minimum international standard for teacher- student ratio is 30: 1 but in
Bangladesh

there

is

one

teacher

for

every

53

students.

Lack of qualified teachers and poor school facilities in terms of the number of schools, classrooms,
libraries and playgrounds are responsible for poor quality education at primary schools. A recent
DPE internal report shows that around 70 percent of children are unable to read or write properly,
or perform basic mathematical calculations even after five years at primary school. The World
Bank in their report titled Bangladesh Education Sector Review published in March also said
the same. It also observed that the most common teaching method at secondary classes in the
country is lecturing and reading textbooks and when it comes to interaction, teachers only ask
closed 'yes' or 'no' questions to check whether the students have memorized the textbook
information or not. Most teachers feel uncomfortable in adopting innovative educational
approaches as they fear that using other approaches may result in poor performances in
examinations. As a result, though the pass rates in public examinations are getting higher, a huge
number of students are failing to master the desired competencies due to a flawed education
system.

Our secondary and higher secondary curriculum doesn't reflect market demand or job-oriented
syllabuses. In 2013, a total of 10, 02,496 students participated in H.S.C Exam from different boards
and among them 744,891 students came out successful. After SSC and HSC, research shows that
35 to 40 percent of the students in our country have no scope of enrolling themselves to collage or
public universities

Bangladesh has certainly made remarkable progress in expanding the primary education especially
raising enrollment of the students and bringing gender parity. But our education system is not yet
pro-poor and the quality and curriculum do not effectively serve the goals of human development
and poverty eradication. Our traditional primary, secondary and higher secondary studies are not
producing

quality

or

skilled

persons

to

climb

the

ladder

of

poverty.

We need to unify the various types of education systems that exist in our country. We must create
a level playing field where every student will get the same and proper opportunity. Discrimination
in every stage of education must be removed or else mental separation will be established from the
very beginning of their educational life, which can be very dangerous for a nation.
Bangladesh spends less than 3 percent of its GDP on the education sector. In our national budget
for the year 2013, the education sector got the third largest allocation amounting to Tk.25, 114
crore of which Tk. 11,935.37 crore was set for the primary and mass education, and Tk.13, 179.23
crore for the education ministry. The budgetary allocation for education in our country is not
adequate compared with those of other South Asian and developing countries that put education
at the top of the policy agenda. More investment should be made to upgrade the infrastructure
facilities. Teacher training must also be emphasized, with age-old methods of delivering only
lectures replaced by classroom interaction. At all levels, teachers should be appointed based on
merit and experience, and not on political consideration.

MODEL SPECIFICATION

The study investigates the relationship between economic growth and public expenditure on
education. The data set comprises of annual time series data for Bangladesh over the sample period
of 1984-2013.

Ordinary Least Square Method:

Most of the studies typically use Ordinary Least square (OLS) to estimate following growth equation:

Yt = 0 + 1xt + t
Where Yt is the real gross domestic product (RGDP), 0 is the intercept term, is the regression
coefficient, Xt is a set of baseline explanatory variables and t is the error term.

Yt = Dependent Variable (RGDP).

X = Education Expenditure
t = Time series (Annual)
0 = Represents the constant or intercept on Y axis
According to excel calculation the regression output the equation stands as-

Yt= 991136.84 + 32.551429*Xt + t

Here,
0 = 991136.84

1 = 32.551429

Correlation Analysis:
Correlation means how the two variables are related to one another. For changes in one variable
how much the other variable changes and the direction of change is determined by correlation. The
value of correlation remains between (-1) to (+1). The correlation matrix helps to find the
correlation between two variables. This can be calculated by using excel data analysis function.
The excel output shows

GDP
GDP

Educational Expense

Educational
Expense

0.992484 1

From this it can conclude that there is a positive relationship between GDP and educational
expenditure. For one unit change in the overall educational expense the level of total GDP also
increases by 0.992484 unit. So the relation between these two variables is quite perfectly positive.
Regression Analysis:
The report also includes the regression analysis of these two variables. This analysis introduces
how two variables, one independent and the other is dependent, are related to one another by
expressing their relationship through an equation.
The excel provides us with the mechanism to calculate the regression between variables. In our
analysis the dependent variable is RGDP and the independent variable is education expenses.
The outputs of the regression analysis are analyzed below:
Regression Statistics
Multiple R

0.992483859

R Square

0.985024211

Adjusted R Square

0.984489361

Standard Error

206117.0372

Observations

30

Multiple R is the correlation coefficient, tells us how strong the linear relationship is. For example,
a value of 0.9924 means a quite perfect positive relationship between GDP and educational
expenditure.
R square: This is r2, the Coefficient of Determination. It tells how many points fall on the
regression line. For example, a value of 98.50% means that 98.50% of the variation of dependent
variables values around the mean is explained by the independent variables values. In this model
the values of educational expenditure can explain about 98.50% changes in the value of RGDP.

Standard Error of the regression: An estimate of the standard deviation of the error of regression
equation. The standard error of the regression is the precision that the regression coefficient is
measured. If the coefficient is large compared to the standard error, then the coefficient is probably
different from 0. This explains the error term of the regression equation and is denoted as .
Observations: Number of observations in the sample is 30.
ANOVA Test

ANOVA
df

SS

MS

Regression 1

78242549693670.70 78242549693670.70 1841.68

Residual

28

1189558524416.26

Total

29

79432108218087.00

Significance F
0.00

42484233014.87

To check if the results are reliable (statistically significant), look at Significance F. If this value is
less than 0.05, the model is fine. If Significance F is greater than 0.05, it's probably better to stop
using this set of independent variables. Delete a variable with a high P-value (greater than 0.05)
and rerun the regression until Significance F drops below 0.05.
Most or all P-values should be below 0.05.
Coefficients

Standard Error

t Stat

Intercept

991136.8435

72711.63516

13.6310625

Educational Expense

32.55142922

0.758511999

42.91485071

In our model the F value is 0.00 and the P values are also (0.00, 0.00) insignificant. So the
independent variable is good enough to explain the dependent variable.
The regression line is: y = RGDP =991136.84 + 32.551429*Educational expenses. In other words,
for each unit increase in Educational expenditure, RGDP increases with 32.551429 units. And the
intercept explains the level of GDP without any educational expenditure.
The residuals show you how far away the actual data points are from the predicted data points
(using the equation). For example, the first data point equals 1752768.83. Using the equation, the
predicted data point equals 991136.84 + 32.551429*21966.22= 1706168.9, giving a residual of
1752768.83 - 1706168.9= 46599.97645 (appendix)

GDP Y
9000000.00
y = 32.551x + 991137
R = 0.985

8000000.00
7000000.00
6000000.00
5000000.00

GDP Y

4000000.00

Linear (GDP Y)

3000000.00
2000000.00
1000000.00
0.00
0.00

50000.00

100000.00

150000.00

200000.00

250000.00

Descriptive Statistics

The descriptive analysis shows most of the statistical analysis. Here we can find the central
tendency of the data set by using Mean, Median and Mode. It also determines the standard
deviation of the central value. Standard deviation tells about the viability of the central values of
the data set measured by Mean, Median, and Mode. Other measures also indicate how the values
are symmetric using skewness analysis. Kurtosis analyses the peakness of the data.

GDP

Educational Expense

Mean

3661130.69

Mean

82023.86

Standard Error

302161.01

Standard Error

9212.80

Median

3201292.14

Median

74531.16

Mode

#N/A

Mode

#N/A

Standard Deviation

1655003.99

Standard Deviation

50460.60

Sample Variance

2739038214416.80

Sample Variance

2546272461.65

Kurtosis

-0.56

Kurtosis

-0.15

Skewness

0.75

Skewness

0.77

Range

5546196.17

Range

183877.11

Minimum

1752768.83

Minimum

21966.22

Maximum

7298965.00

Maximum

205843.33

Sum

109833920.68

Sum

2460715.77

Count

30.00

Count

30.00

Confidence Level(95.0%)

617988.65

Confidence Level(95.0%)

18842.30

Hypothesis Analysis:
t-Test: Two-Sample Assuming Unequal Variances
Educational
GDP

Expense

Mean

3661130.69

82023.86

Variance

2739038214416.80

2546272461.65

Observations

30.00

30.00

Hypothesized Mean Difference

0.00

df

29.00

t Stat

11.84

P(T<=t) one-tail

0.00

t Critical one-tail

1.70

P(T<=t) two-tail

0.00

t Critical two-tail

2.05

Here, the Null Hypothesis is

H0: there is no deviation between the mean value of RGDP and Educational Expenses
The alternate Hypothesis is
H1: the mean value is higher for RGDP

According to the output the t-stat is 11.84 and the two tailed P-value is 0.00 so we will reject the
null Hypothesis. This means that the mean value of GDP and education sector spending cant be
considered equal.
Here we have considered the significance level of P-value is 0.

Conclusion:
This paper has addressed the issue of functional relationship between public expenditure on
education and economic growth of Bangladesh using data during the period of 1984-20013. The
data is subject to unit root test to determine stationary and also integration test. The study finds a
positive and significant impact of public education expenditure on economic growth. The result
shows that a For one unit change in the overall educational expense the level of total GDP also
increases by 0.992484 unit in the long run. The economy of Bangladesh can expect to grow by
investing in education at a greater extent. Therefore The study suggests that Bangladesh
government should increase its public spending on education as well as develop education quality.

Recommendations
In the light of the researchers findings, the following recommendations are presented;
1. Government should ensure that capital expenditure and recurrent expenditure are properly
managed in a manner that it will raise the nations production capacity.
2. Government should direct its expenditure towards the productive sectors like education
as it would reduce the cost of doing business as well as raise the standard living of poor ones in
the country.
3. Effort should be made to increase government funding on education to curtail the level
of strike in our education sector and as well increase funding on anti -graft or anticorruption
agencies in order to arrest and penalize those who divert and embezzle public funds.

Appendix:
Public finance.xlsx
Appendix:
Public finance.xlsx
t-Test: Two-Sample Assuming Unequal Variances

Mean
Variance
Observations
Hypothesized
Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail
Year
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001

Educational
Expense X
82023.86
2.55E+09
30
Mean 0

GDP
1752768.83
1809265.49
1886133.41
1956528.88
1998774.30
2050989.32
2172844.89
2245403.91
2358552.80
2466441.86
2567188.70
2693624.08
2818122.53
2969950.34
3125205.42
3277378.87
3472202.88
3655327.35

GDP Y
3661131
2.74E+12
30

29
-11.8395
6.28E-13
1.699127
1.26E-12
2.04523
Educational Expense X GDP Y
21966.22
22211.81
26119.93
30575.85
32173.13
34004.01
34242.08
33170.00
38486.16
41747.49
47798.02
55167.31
63488.84
66218.61
69819.57
79242.76
82791.90
89911.91

1752768.83
1809265.49
1886133.41
1956528.88
1998774.30
2050989.32
2172844.89
2245403.91
2358552.80
2466441.86
2567188.70
2693624.08
2818122.53
2969950.34
3125205.42
3277378.87
3472202.88
3655327.35

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

3816725.07
4017331.92
4269238.83
4523492.00
4823370.00
5163832.00
5474373.00
5750562.00
6070972.00
6463423.00
6884932.00
7298965.00

88464.05
95634.60
95984.87
106786.28
118431.10
131939.01
130881.31
128458.35
143752.75
162228.21
183176.31
205843.33

3816725.07
4017331.92
4269238.83
4523492.00
4823370.00
5163832.00
5474373.00
5750562.00
6070972.00
6463423.00
6884932.00
7298965.00

GDP
8000000.00
7000000.00
6000000.00
5000000.00
4000000.00

GDP

3000000.00
2000000.00
1000000.00
0.00
0

10

15

20

25

30

35

Educational Expense X
250000.00
200000.00
150000.00
Educational Expense X

100000.00
50000.00
0.00
0

10

15

20

25

30

35

Correlation
GDP
GDP
Educational Expense

1
0.992484

Educational Expense
1

SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations

0.9924839
0.9850242
0.9844894
206117.04
30

ANOVA
df
Regression
Residual
Total

Coeffi
cients

SS
MS
1 78242549693670.70 78242549693670.70
28 1189558524416.26
42484233014.87
29 79432108218087.00

Standard
Error

t Stat

P-value Lower
95%

Upper
95%

F
1841.68

Lower
95.0%

Upper
95.0%

Significance
F
0.00

Intercept

99113
6.84
Education 32.55
al Expense 1429

72711.63
516
0.758511
999

13.63106 0.00
25
42.91485 0.00
071

RESIDUAL OUTPUT

Observation
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

Predicted
GDP
1706168.9
1714163
1841377.9
1986424.5
2038418.1
2098016
2105765.5
2070867.9
2243916.3
2350077.3
2547030.8
2786911.7
3057789.3
3146647.1
3263863.5
3570602
3686131.5
3917898.2
3870768.2
4104179.6
4115581.5
4467182.9
4846238.3
5285940.1
5251510.5
5172639.9
5670494.3
6271896.9
6953787.6
7691631.5

Residuals
46599.97645
95102.4981
44755.51704
-29895.60234
-39643.79673
-47026.64866
67079.40712
174536.0048
114636.5403
116364.6103
20157.85163
-93287.61669
-239666.8126
-176696.7961
-138658.0675
-293223.0831
-213928.6343
-262570.8149
-54043.15538
-86847.67434
153657.2958
56309.14738
-22868.33556
-122108.0554
222862.468
577922.1326
400477.7228
191526.0987
-68855.64647
-392666.5309

84219
3.8127
30.997
68784

114007
9.874
34.1051
706

842193.
8127
30.9976
8784

114007
9.874
34.1051
706

GDP Y
9000000.00
y = 32.551x + 991137
R = 0.985

8000000.00
7000000.00
6000000.00
5000000.00

GDP Y

4000000.00

Linear (GDP Y)

3000000.00
2000000.00
1000000.00
0.00
0.00

50000.00

100000.00

150000.00

Descriptive Statistics
GDP
Mean
Standard Error
Median
Mode
Standard Deviation
Sample Variance
Kurtosis
Skewness
Range
Minimum
Maximum
Sum
Count

200000.00

250000.00

Educational Expense
3661130.69
302161.01
3201292.14
#N/A
1655003.99
2739038214416.80
-0.56
0.75
5546196.17
1752768.83
7298965.00
109833920.68
30.00

Mean
Standard Error
Median
Mode
Standard Deviation
Sample Variance
Kurtosis
Skewness
Range
Minimum
Maximum
Sum
Count
Confidence
617988.64 Level(95.0%)

Confidence Level(95.0%)

82023.86
9212.80
74531.16
#N/A
50460.60
2546272461.65
-0.15
0.77
183877.11
21966.22
205843.33
2460715.77
30.00
18842.30

OLS:
Year

GDP Y

Educat
ional

XY

x^2

y^2

xy

198
4

17527
68.83

198
5

18092
65.49

198
6

18861
33.41

198
7

19565
28.88

198
8

19987
74.30

198
9

20509
89.32

199
0

21728
44.89

199
1

22454
03.91

199
2

23585
52.80

199
3

24664
41.86

199
4

25671
88.70

199
5

26936
24.08

199
6

28181
22.53

Expens
eX
21966. 3850171430 22
5.97
60057
.63
22211. 4018706072 81
5.14
59812
.05
26119. 4926567251 93
6.19
55903
.93
30575. 5982253520 85
6.58
51448
.01
32173. 6430681866 13
0.16
49850
.73
34004. 6974186111 01
3.70
48019
.85
34242. 7440272849 08
0.54
47781
.78
33170. 7448005818 00
7.05
48853
.85
38486. 9077163343 16
4.61
43537
.70
41747. 1029677527 49
31.64
40276
.37
47798. 1227065479 02
80.42
34225
.83
55167. 1486000006 31
95.65
26856
.55
63488. 1789193313 84
87.85
18535
.02

36069194
39.32
35774812
65.81
31252493
04.41
26468975
66.24
24850955
35.25
23059059
20.39
22830984
25.92
23866990
96.36
18955315
07.17
16221860
52.96
11714077
70.23
72127411
6.75
34354691
9.52

19083
61.86
18518
65.20
17749
97.28
17046
01.81
16623
56.39
16101
41.37
14882
85.80
14157
26.78
13025
77.89
11946
88.83
10939
41.99
96750
6.61
84300
8.16

3641844973 114611698
664.77
488.88
3429404711 110763852
045.06
888.19
3150615339 992293222
605.41
72.06
2905667315 876983679
859.33
81.71
2763428763 828696837
251.19
30.12
2592555238 773187459
341.29
35.39
2214994614 711129433
623.49
93.33
2004282318 691637101
610.51
28.02
1696709157 567112481
328.52
45.57
1427281391 481177302
829.43
81.77
1196709074 374410778
334.61
20.75
9360690316 259838866
08.73
22.14
7106627629 156251720
85.80
96.29

199
7

29699
50.34

66218.
61

24980600
6.46

82791.
90

1966659730 83.78
15805
.25
2182004847 04.31
12204
.29
2597085484 62.29
2781.
10
2874702727 768.0
16.57
4

199
8

31252
05.42

69819.
57

199
9

32773
78.87

79242.
76

200
0

34722
02.88

200
1

36553
27.35

89911.
91

3286574794 7888.
48.77
06

62221415
.37

200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3

38167
25.07
40173
31.92
42692
38.83
45234
92.00
48233
70.00
51638
32.00
54743
73.00
57505
62.00
60709
72.00
64634
23.00
68849
32.00
72989
65.00
36611
30.69

88464.
05
95634.
60
95984.
87
10678
6.28
11843
1.10
13193
9.01
13088
1.31
12845
8.35
14375
2.75
16222
8.21
18317
6.31
20584
3.33
82023.
86

3376429712
86.27
3841959112
55.51
4097823336
79.60
4830468796
76.12
5712370033
85.26
6813108607
10.48
7164931079
38.73
7387077301
34.65
8727189139
82.36
1048549536
306.75
1261156462
289.51
1502443283
666.87
1141266146
8163.30

41476105
.04
18525213
0.64
19490981
7.88
61317744
6.09
13254870
12.85
24915218
73.58
23870504
71.29
21561623
27.45
38104558
37.93
64327377
07.95
10231819
013.20
15331262
121.89
73841901
387.73

6440.
19
13610
.74
13961
.01
24762
.42
36407
.24
49915
.15
48857
.45
46434
.50
61728
.89
80204
.35
10115
2.45
12381
9.47
0.00

14894478
3.19
7734510.
16
589886.4
6

69118
0.35
53592
5.27
38375
1.82
18892
7.81
5803.3
4
15559
4.38
35620
1.23
60810
8.15
86236
1.31
11622
39.31
15027
01.31
18132
42.31
20894
31.31
24098
41.31
28022
92.31
32238
01.31
36378
34.31
0.00

4777302818 109242800
38.51
16.24
2872158929 654058933
45.18
9.08
1472654606 106725170
27.37
5.13
3569371854 7.63
145104242
.47
33678792.9 9
45777092.
18
2420961097 100205806
5.56
6.03
1268793167 484816086
09.45
3.15
3697955163 848980428
07.23
1.38
7436670299 213541529
16.27
95.19
1350800214 423139237
964.49
35.47
2258111228 750075564
698.63
14.46
3287847676 885903964
732.44
67.60
4365723201 970216877
464.90
76.77
5807335141 148756828
985.14
732.55
7852842193 224756032
711.61
386.31
1039289488 326095414
9839.40
773.07
1323383847 450434730
0942.00
540.12
7943210821 240365942
8087.00
6542.14

b2
b1

32.55142922
991136.8435

Hypothesis
t-Test: Two-Sample Assuming Unequal Variances

Mean
Variance
Observations
Hypothesized Mean Difference
df
t Stat
P(T<=t) one-tail
t Critical one-tail
P(T<=t) two-tail
t Critical two-tail

GDP
3661130.69
2739038214416.80
30.00
0.00
29.00
11.84
0.00
1.70
0.00
2.05

Educational Expense
82023.85916
2546272462
30

References:

http://www.moedu.gov.bd/
http://www.bbs.gov.bd/home.aspx
http://www.dpe.gov.bd/
www.isrt.ac.bd
Report No. 80613-BD, Bangladesh Education Sector Review Seeding Fertile Ground: Education
That Works for Bangladesh (world Bank Report)