THE IMPACT OF GOVERNMENT EDUCATION EXPENDITURES ON ECONOMIC GROWTH: EVIDINCE FROM AZERBAIJAN

This paper investigates the impact of government education expenditures on economic growth in Azerbaijan during 1995-2017 using the Vector Error Correction Model (VECM). Since the study uses time series variables the unit root properties of employed variables are tested for non-stationarity. Stationarity of the data is tested using conventional Augmented Dickey Fuller test. Different cointegration methods, namely, Johansen, DOLS, FMOLS and CCR are used in order to get more robust results. The results from cointegration methods are consistent with each other and confirm existence of long-run relationship among the variables. This implies that there is a long run relationship between government expenditures on education and economic growth in Azerbaijan. In order to test the quality of the model residuals of the model are tested for the serial correlation, heteroskedasticity, and normality. The model is checked for model misspecification and stability. The results of all above mentioned tests are found to be adequate. Moreover, estimation results of VECM show that government expenditures on education has positive and statistically significant impact on economic growth in the long-run. The paper concludes that a concerted effort should be made by policy makers to boost educational investment in order to accelerate economic growth.