Education Expenditures and Growth: Is R&D the link?

This article empirically investigates the relationship between education expenditures and economic growth. The study focuses on European countries with different models of state intervention, i.e. Germany, France, Greece, Italy, Spain, and Portugal, for the period 1996–2019, employing econometric techniques, such as adaptive LASSO and 3SLS model. The study finds that education expenditure significantly influences GDP per capita identifying the R&D expenditures as the main channel through which education expenditures influence economic growth. The findings are consistent throughout the sample. Also, we extend the existing literature, as the first research to empirically identify R&D expenditures as the key channel, leading to useful insights for policy makers, regarding economic growth. Specifically, it indicates that strategic funding allocation in education, particularly paired with R&D, should boost economic growth and resilience. This positive outcome leads to optimized allocation of public expenditures for innovation and competitiveness. • Education Expenditures Boost Growth: Education spending significantly enhances GDP, supporting long-term economic resilience.. • R&D as the Growth Channel: R&D is the primary mechanism linking education spending to economic development. • Consistent Across Economies: Findings hold across corporatist (Germany, France) and Mediterranean (Greece, Italy, Spain, Portugal) models. • Advanced Methods Applied: Uses adaptive LASSO and 3SLS, integrating econometrics and machine learning for robust insights.