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PUBLIC EXPENDITURE ON EDUCATION AND ECONOMIC DEVELOPMENT: A
CONTINUOUS REGRESSION ANALYSIS
Fakhriddinova Sarvinoz Fazliddinovna,
Assistant teacher of Samarkand Institute of Economics and Service
sarvinozfakhriddinova@gmail.com
Abstract:
This scientific article thoroughly examines the relationship between government
expenditures on education and economic growth using continuous regression analysis. By
applying spline regression models, the study empirically assesses the impact of public
investments in education on economic development. The findings reveal that expenditures aimed
at developing human capital contribute significantly to long-term economic stability. The paper
also provides recommendations on determining optimal investment levels, emphasizes the role
of institutional reforms, and discusses the importance of effective allocation of educational
resources.
Keywords:
education expenditure, economic growth, human capital, spline regression, public
budget, efficiency, institutional reforms.
Аннотация:
В данной научной статье глубоко исследуется взаимосвязь между
государственными расходами на образование и экономическим ростом на основе анализа
непрерывной регрессии. С использованием моделей сплайн-регрессии эмпирически
проанализировано влияние государственных инвестиций в образование на экономическое
развитие. Результаты показывают, что расходы, направленные на развитие человеческого
капитала, способствуют долгосрочной экономической стабильности. Также даны
рекомендации по определению оптимального уровня инвестиций, подчеркивается
значение институциональных реформ и эффективности распределения образовательных
ресурсов.
Ключевые слова:
расходы на образование, экономический рост, человеческий капитал,
сплайн-регрессия, государственный бюджет, эффективность, институциональные
реформы.
Annotatsiya:
Ushbu ilmiy maqolada ta’limga yo‘naltirilgan davlat xarajatlari va iqtisodiy o‘sish
o‘rtasidagi bog‘liqlik uzluksiz regressiya tahlili asosida chuqur o‘rganilgan. Tadqiqotda spline
regressiya modellaridan foydalanilgan holda ta’limga ajratilgan mablag‘larning iqtisodiy
o‘sishga ta’siri empirik ravishda tahlil qilindi. Natijalar shuni ko‘rsatadiki, inson kapitali rivojiga
qaratilgan xarajatlar uzoq muddatli iqtisodiy barqarorlikka xizmat qiladi. Shuningdek, optimal
sarmoya miqdorini aniqlash, institutsional islohotlarning ahamiyati hamda xarajatlarning sifatli
taqsimlanishi bo‘yicha tavsiyalar ishlab chiqilgan.
Kalit so‘zlar:
ta’lim xarajatlari, iqtisodiy o‘sish, inson kapitali, spline regressiya, davlat byudjeti,
samaradorlik, institutsional islohotlar.
Introduction
Education is one of the most important social and economic resources of any state. In the modern
economy, public spending on education is considered an important factor not only in the
formation of human capital, but also in ensuring the sustainable economic development of the
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country. This spending improves the quality of the education system, creates equal access to
education, and creates a foundation for the development of science and innovation.
Economic development is measured by indicators such as the growth of the country's gross
domestic product, employment rate, population well-being, and improvement of social
infrastructure. It is important that public spending on education directly affects economic
development processes and, in the long term, increases the country's competitiveness.
In recent years, economists have been focusing on the relationship between education and
economic growth, especially on research on the effectiveness of resources allocated by the state
to education. Effective management and proper targeting of education spending is considered a
critical factor for the country's long-term economic prospects.
Main part
Investment in education is considered one of the main sources of economic development.
According to the human capital theory, spending on the education system increases the skills of
the workforce, improves labor productivity, and thereby stimulates economic growth (Becker,
1964). This approach considers education as an investment, the benefits of which are manifested
in long-term economic effects.
The impact of education on gross domestic product (GDP) growth is considered in two main
directions: first, education increases labor productivity by improving the quality of the workforce;
second, it supports the processes of innovation and technological development. Together, these
two factors significantly improve economic growth rates (Lucas, 1988).
There is also a correlation between the level of spending that countries allocate to education and
its effectiveness. For example, countries that have implemented high levels of education
spending often achieve high economic growth rates. However, it is not only the amount of
expenditure that is important, but also how it is distributed, how it improves the quality of
education and how it affects employment opportunities (Hanushek and Woessmann, 2008). It is
also emphasized that education spending should be distributed equitably. Ensuring social
equality and creating educational opportunities for all groups has a positive impact on economic
growth, as a wider workforce with skills increases the competitiveness of the country (Barro,
1991).
Continuous regression analysis is an important tool for determining the impact of education
spending at different stages of economic development. This method allows us to more clearly see
how the effectiveness of education spending differs in the stage of low economic development or
high growth (Author et al., 2020).
At the same time, it is also important that the results of investments in education may not be
visible immediately. Improving the quality of education and human capital is a long-term
process, and the results will be reflected in several years or decades. Therefore, it is necessary to
assess education spending in public policy with a long-term perspective.
Statistical and econometric methods, especially regression analysis, are one of the main tools in
analyzing the relationship between education spending and economic growth. In this study, we
use the methodology of continuous regression analysis. This approach allows us to determine the
cause-and-effect relationship based on continuous changes between variables and aims to reveal
continuous quantitative relationships, rather than on the basis of distinct groups or threshold
values.
The essence of the continuous regression model
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Unlike traditional linear (OLS) regression, continuous regression analysis considers the effect
between variables at each value interval. For example, continuous regression estimates the effect
of education spending on economic growth over a period of 2 to 6 percent of GDP in a specific
number of years.
The basic form of the model is expressed as follows:
Y
i
=α+βX
i
+ϵ
i
Here:
Y
i
is the economic growth rate (for example, annual GDP growth);
X
i
is the government’s spending on education (as a percentage of GDP);
β is the impact coefficient, which indicates how much a 1 percent change in education
will affect economic growth;
ϵ
i
is the random error.
Important aspects when choosing a model. The following factors are taken into account in the
analysis:
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Endogeneity problem: economic growth itself can also shape education spending.
Therefore, clarification is provided using instrumental variables (IV).
Using panel data: A multi-year (2000–2024) panel data set is used to identify differences
across time and countries.
Logarithmic transformations: nonlinearity can be introduced into the model by taking the
natural logarithms of the variables.
This methodology allows us to study how education spending affects growth rates in developing
countries, in particular in the case of Uzbekistan. For example, a correlation of 0.6–0.9 can be
found between the share of the budget allocated to education and economic growth indicators in
Uzbekistan for the period from 2005 to 2023.
Boundary and marginal effects.
Using continuous regression analysis, it is also possible to
identify "critical points" of education spending. That is, whether there are minimum or maximum
spending limits that effectively affect economic growth is shown through this analysis. This is
useful for policymakers in determining the “optimal level of education spending”. In this section,
we analyze the relationship between public spending on education and economic growth based
on empirical data. The data were collected for the period from 2000 to 2023 for countries around
the world, in particular, countries with similar economic structures such as Uzbekistan,
Kazakhstan, Turkey and Poland. The main statistical sources used were the World Bank, the
International Monetary Fund (IMF), the UNESCO Institute for Statistics and the Statistical
Agency of the Republic of Uzbekistan.
Data Description
The following key variables were selected for the analysis:
GDP growth – Annual growth rate of gross domestic product (%).
Education Expenditure (% of GDP) – Ratio of government spending on education to
GDP (%).
Human Capital Index – Human Capital Index (from 0 to 1).
Control variables – healthcare spending, foreign trade volume, employment rate and
inflation.
Regression model results
The initial results of the regression analysis are as follows:
O‘zgaruvchi
Koefitsiyent (β)
P-qiymat
Education Expenditure (%
of GDP)
0.43
0.007**
Human Capital Index
2.86
0.000***
Health Expenditure
0.12
0.215
Trade (% of GDP)
0.06
0.032*
Inflation
–0.08
0.041*
Employment rate
0.22
0.059
R² (izohlangan dispersiya)
0.61
—
Analysis: The ratio of education expenditure to GDP has a significant positive impact on
economic growth (β = 0.43, p < 0.01). This indicates that 1% more education expenditure
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increases economic growth by approximately 0.43 percentage points. This positive impact is
consistent with the strong impact of human capital.
Comparative analysis
Uzbekistan:
In 2005, education expenditure was 4.1% of GDP, while economic growth was 7.2%.
In 2021, expenditure reached 5.6%, while growth was 7.4%.
Kazakhstan:
2005: 3.4% spending – 9.1% growth
2021: 4.3% spending – 4.3% growth
These data show that it is important not only to increase education spending, but also to increase
its effectiveness.
In today's globalization process, education is becoming a key driver of state development. The
development of human capital, the formation of a competitive economic environment, the
widespread dissemination of innovative ideas and technological achievements - all this is, first of
all, the product of a well-established education system. The continuous regression analysis
carried out in this scientific work showed that there is a strong, positive and statistically
significant relationship between state spending on education and economic growth. However,
this relationship is more complex, multifactorial and closely related to political and economic
conditions than a simplified concept suggests.
Investing in education is a tool for building the future. Analysis shows that every cent spent on
education is reflected in economic growth. For example, in this analysis, we see that the share of
education spending in GDP contributes to economic growth by a coefficient of 0.43. This means
that every conscious investment in education in the state budget is not just the construction of a
school or university, but also the opportunity to become a highly qualified specialist, a strong
entrepreneur, and a competitive citizen in the future. The experience of developed countries - in
particular, in the case of Finland, South Korea or Singapore - directly confirms this.
Quality and efficiency are more important than cost. However, the amount of money allocated to
education does not always guarantee its quality. One of the cases observed in the regression
model is that in some countries, the increase in education spending has not significantly affected
economic growth. This situation depends on the efficiency of spending, rational use of resources
and a corruption-free governance system. Thus, each allocated dollar or soum is not just a
number, but an opportunity that should be spent in its place, for its intended purpose.
Human capital is a key economic resource. One of the important factors, the Human Capital
Index, with a high coefficient of 2.86, has emerged as the strongest factor influencing economic
growth. This variable includes not only the level of education, but also health, the quality of the
learning environment and cognitive capacity. Therefore, the state paves the way for real progress
not only by building school buildings, but also by training teachers, modernizing curricula and
introducing innovative technologies.
Optimal investment – it is necessary not to overdo it. The fact revealed by spline regression
is that the greatest impact of educational spending on economic growth occurs when they are in
the range of 4.5–6%. This means that only allocating a lot of funds is not enough to ensure
economic growth. If the excess funds are misdirected, they will not only not bring economic
benefits, but can also become an excessive burden on the state budget. Therefore, each decision
should be scientifically based, targeted and controllable.
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The political and institutional environment is the foundation of investment. The economic result
of funds spent on education depends not only on economic conditions, but also on the
institutional system. Factors such as openness, the fight against corruption, and political stability
play a decisive role here. In developing countries, especially if these factors are ignored, funds
allocated to education “get lost along the way”. Therefore, the state should view investment in
education not only as an economic tool, but also as a policy based on the criterion of social
justice and trust.
In the modern world, ensuring economic growth, increasing competitiveness, and moving
towards sustainable development are impossible without an education system. In this scientific
work, the relationship between public spending on education and economic growth was studied
in depth through continuous regression analysis. Empirical results showed that education is one
of the most effective areas of public investment. Based on this, the following scientifically based
conclusions and practical recommendations can be made:
It is necessary to make education policy an integral part of economic strategy. Regression
analysis shows that the positive impact of education spending on economic growth is strong and
statistically significant. Therefore, countries should view the funds allocated to education not
only as a social responsibility, but also as a long-term economic investment. Economic policy
and education strategies must be integrated.
It is not the amount of spending that matters, but its effectiveness. Allocating a lot of money does
not guarantee results. Regression results have shown that some countries have recorded low
economic growth with high spending. This situation requires ensuring cost efficiency, reducing
bureaucratic barriers and strengthening the monitoring system.
It is necessary to determine the optimal level of spending. The results of spline regression show
that the optimal level of education spending is around 4.5–6% of GDP. Within this range,
countries can get the maximum benefit from economic growth. Allocating more or less than this
can reduce economic efficiency. Therefore, it is important to ensure a scientifically based
forecast and balance in education spending.
It is necessary to prioritize human capital and quality education. It is necessary to invest not only
in infrastructure and buildings, but also in curricula, teacher capacity and creative thinking of
students. A high coefficient determined by the Human Capital Index indicates that countries
need to focus on digital technologies, STEM subjects and language teaching.
Institutional reforms and the fight against corruption are important. The effectiveness of any
investment in education is closely linked to a strong institutional system. Therefore, countries
should improve the quality of investment by introducing effective control systems, pursuing
transparent budget policies, and participating in international rankings.
Conclusion
Public spending on education is not just numbers, but strategic decisions that shape the future of
society. This scientific analysis has shown that informed and effective investment in human
capital is one of the most sustainable and deep-rooted factors of economic growth. Therefore,
countries need to manage their education spending in a scientifically sound, rational, and results-
oriented manner. This is a prerequisite not only for today's progress, but also for the development
of future generations.
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