State Educational Investments and Economic Growth in the United States: A Path Analysis

Objective This article investigates direct and indirect relationships between state investments in education and economic growth measured as change in per-capita gross state product (GSP). As a basis for selecting control variables, it also applies a conceptual framework borrowed from the cross-national growth research. Method We gathered 18 years of panel data on the 48 continental states and ran GLS regressions with panel corrected standard errors after executing an AR1 correction for autocorrelation. Results Per-capita savings deposits, college attainment, and initial GSP are the most consistent predictors of GSP growth over the 18-year period investigated. However, all the independent variables in the model, except high school attainment, predict per-capita GSP growth from 1997 to 2005. Conclusion The study supports the virtues of a path model and a cross-national framework for explaining the relationship between educational expenditures and GSP growth, especially from 1997 to 2005.