Author(s): Nemushungwa Azwifaneli Innocentia
This study investigates the impact of government education expenditure on economic growth in South Africa for the period spanning from 1994 to 2021. Drawing on the human capital theory and employing a modified Cobb-Douglas production function, the study incorporates gross fixed capital formation, labour force, education expenditure, and poverty as key determinants of economic growth. Using the autoregressive distributed lag (ARDL) bounds testing approach, the analysis examines both short- and long-run dynamics, whilst the Granger causality test explores the direction of relationships among the variables. Empirical results reveal a positive and significant long-run and short-run impact of education expenditure on GDP, highlighting its critical role in promoting economic growth. Causality analysis indicates a unidirectional relationship from education expenditure to economic growth, while diagnostic tests confirm model stability and absence of structural breaks, heteroskedasticity, and autocorrelation. The findings underscore the importance of sustained investment in education for enhancing human capital and driving economic development in South Africa. This study contributes to the literature by providing country-specific evidence on the education–growth nexus, addressing previous research gaps related to short- and long-run dynamics, and informing evidence-based policy interventions to maximize the economic returns of education spending.