Business & Management Studies

Abstract

There has been consensus on the notion that education results in economic prosperity and growth in many countries. This has resulted in a strong focus on education policy, with large investments and a lot of public debates concerning the subject. Various schools of thought have made differing suggestions about how government spending impacts economic growth over the years. The Keynesian view is that there is a positive relationship between government spending and economic growth, where the causal effect runs from government spending to economic growth. Conversely, the Neo-classical school asserts that the relationship between the two variables is negative. The topic, therefore, remains a debatable issue. The impact of government spending on economic growth depends on what it spends its money on. Globally, education is regarded as one of the primary drivers of economic growth. There is no doubt that education is one of South Africa’s to domestic priorities. However, despite the vast literature for developing economies, there seems to be a dearth in the literature on the nexus between government education expenditure on economic growth in South Africa. The present study, therefore, tests the causal effect of education expenditure on economic growth in South Africa for the period 1994 to 2021, with the aid of the autoregressive distributed lag approach and Granger causality test. Consistent with Keynesian theory, the study results confirm the positive impact of government spending on economic growth. A Granger causal relationship exists between government education expenditure and economic growth, indicating that over time, education expenditure positively impacts economic growth through human capital. This implies that investing (spending) in education is critical in promoting economic growth, especially in the long term.