AbstractEducation has the power to transform the future of a nation.
An educated society provides for higher rates of economic growth which leads to the ability of governments to reduce poverty. This paper focuses on establishing the relation between education growth and economic growth in Saudi Arabia. The study uses data from Saudi Arabia Government and the World Bank from 1981 to 2015 by using the multiple regression analysis, it is shown that there is positive relationship between dependent variables and independent variables. I have taken dependent variable as GDP and four independent variables: Government expenditure on education, total (% of government expenditure), number of students (enrollment), number of teachers and number of schools. This study focuses on primary education, intermediate education and secondary education excluding tertiary education.
I find that the contribution of government expenditure on education is high compared to expenditure on health and housing. 2. IntroductionEducation, in general is a process of continuous change and development without any interruptions; the reformation and learning is part of this process for life long. The economic benefits of education to improve growth rates are numerous. Therefore, government expenditure on education is important to increase economic growth in a country. There is a need for increased government expenditure on education in Saudi Arabia to promote economic growth. Government expenditure on education effect and GDP has been given by UNESCO Institute for Statistics.
In 1981, government expenditure on education was found to be 3.9 % of total GDP which increased to 5.1% of total GDP in 2008. This study gave a detailed analysis of expenditure including current, capital and transfers. The study showed maximum value recorded in Past 27 years in 1998 to be 8.3% of total GDP while the lowest being 3.9%.
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In 1981. The report indicated that the expenditure on education as % of total government expenditure increased from 14.7 (1991) to 19.3 (2008) with highest recorded in 1998 as 23.
98%.The national educational budget is $53.4 billion (200 Billion SAR) as per the national budget for 2017. The Gross fixed capital formation has substantially increased from $39.102 billion (1981) to $170.
92 billion (2016) with highest recorded in 2015 as $195.03 billion as per the World Bank national accounts data, and OECD National Accounts data files. As per the fifty third annual report of Saudi Arabian Monetary Authority (2017) the total number of public education students (males and females) amounted to 5.2 million during the academic year 1436 / 1437H (2015). The number of teachers (male and female) at all levels of public education (including elementary, intermediate and secondary schools) totalled 490.7 thousand. The number of schools stood at 28.
2 thousand, 13.9 thousand of which are schools for girls, accounting for 49.4 percent. The total number of students enrolled in higher education institutions in the Saudi Arabia during the academic year 1436 / 1437H (2015) stood at 1.6 million.
The number of newly enrolled students at various institutions of higher education totalled 393.1 thousand. Of these, 316.3 thousand were at the bachelor level (80.5 percent of the total number of newly enrolled students). Higher diploma, master’s, and doctorate levels accounted for the remaining percentage of the total.
Male freshmen students constituted 53.7 percent, while their female counterparts accounted for 46.3 percent.
The total number of graduates from all levels of higher education in Saudi Arabia stood at 219.1 thousand in the academic year 1436 / 1437H, of which, 116.4 thousand were female graduates, representing 53.1 percent.
The total number of faculty staff at institutions of higher education in Saudi Arabia in academic year 1436 / 1437H (2015) stood at 79.8 thousand. The number of universities in Saudi Arabia at the end of the academic year under review were 38, of which 28 are public universities with 527 colleges, and 10 private universities with 44 colleges. The number of male and female students studying abroad during the academic year 1436 / 1437H (2015) totalled 174.3 thousand.
Students on the government scholarship program accounted for 83.1 percent, while the remaining percentage were studying at their own expense. Human resources development sector (public education, higher education and training of labor force) was allocated SAR 200 billion or 22.5 percent of the budgetary expenditure for 2017, up by 4.5 percent from the previous fiscal year 1437/ 1438H (2016). Saad A.
Alshahrani, Ali J. Alsadiq (2014) investigated the effects of government expenditure on economic growth in Saudi Arabia using Vector Auto Regression (VAR), Cointegration, and Vector Error Correction Model (VECM) techniques to estimate the short- and long-run effects of these expenditures on growth and employ annual data over the period 1969-2010. This empirical analysis provides me with a useful framework to study the relationship between expenditure on education growth and economic growth.3.
Statement of the Problem, Research Questions and Hypothesis3.1 Statement of the Problem/Author’s Statement The education system in Saudi Arabia has been criticized for “poorly trained teachers, low retention rates, lack of rigorous standards, weak scientific and technical instruction”, despite generous budgets that have compelled the kingdom to depend on large numbers of expatriates workers to fill technical and administrative positions. Saudi Arabia is the largest producer and exporter of total petroleum liquids in the world and a resource-rich country that has about one-fifth of the world’s proven oil reserves, according to the US Energy Information Administration still it lacks in economic growth. One of the major cause being poor education. The country needs educated young Saudis with marketable skills and a capacity for innovation and entrepreneurship which is not generally what Saudi Arabia’s educational system delivers, steeped as it is in rote learning and religious instruction.
3.2 Research QuestionsQ1: How does the Government expenditure on education affect GDP (economic growth) in Saudi Arabia?Q2: What are trends for number of students, teachers and schools in general education in Saudi Arabia?Q3: Is there any relationship between Government expenditure on education and Gross fixed capital formation?In order to answer research questions number 1, 2 and 3, I am exploring a variety of indicators, organized into 4 hypotheses, primary schools, intermediate schools, secondary schools and total general education. And for the purpose to answer the questions above, I will test the following 4 hypotheses:Hypothesis I: primary schoolHo: There are no significant relationships between government expenditure in education, number of students, teachers, schools in primary school and economic growth(GDP).Ha: There are significant relationships between government expenditure in education, number of students, teachers, schools in primary school and economic growth(GDP).
Hypothesis 2: intermediate schoolHo: There are no significant relationships between government expenditure in education, number of students, teachers, schools in intermediate school and economic growth(GDP).Ha: There are significant relationships between government expenditure in education, number of students, teachers, schools in intermediate school and economic growth(GDP). Hypothesis 3: secondary (high) schoolHo: There are no significant relationships between government expenditure in education, number of students, teachers, schools in secondary(high) school and economic growth(GDP).Ha: There are significant relationships between government expenditure in education, number of students, teachers, schools in secondary(high) school and economic growth(GDP).
Hypothesis 4: general educationHo: There are no significant relationships between government expenditure in education, number of students, teachers, schools in general education (primary, intermediate, secondary schools) on economic growth(GDP) and Gross fixed capital formation.Ha: There are significant relationships between government expenditure in education, number of students, teachers, schools in general education (primary, intermediate, secondary schools) on economic growth(GDP) and Gross fixed capital formation.4. Review of Literature and Related Theories4.
1 Review of LiteratureIn the empirical study of relation between education growth and economic growth in Saudi Arabia has not been an area of attention among researchers and economists. Dr Mohammed Moosa Ageli (2013) researched on the question whether Education Expenditure Promote Economic Growth in Saudi Arabia using a time series econometrics technique to examine how far Keynesian Relations validity can be applied in Saudi economy and indicated the importance of education expenditure for economic development in the cases where the private capital is in short supply as was in Saudi Arabia. Barro (2001) examined a panel data of around 100 countries observed from 1965 to 1995 and finds that growth is positively related to the starting level of average years of school attainment of adult males at the secondary and higher levels. Growth is insignificantly related to school attainment of females at the secondary and higher levels, and also to male schooling at the primary level. Saad A.
Alshahrani, Ali J. Alsadiq (2014) carried out an empirical investigation on the effects of government expenditure on economic growth in Saudi Arabia employing VAR, cointegration and VECM techniques and time series data for Saudi Arabia over 1969-2010. Their study showed that an immediate increase in the education expenditures for every 10 % increase in oil revenues, but the largest increase is observed in the medium term.
Ashraf Galal Eid (2015) investigated the impact of government expenditure on non-oil private GDP per capita using Autoregressive Distributive Lag (ARDL) approach in Saudi Arabia. He concluded that the estimation of the long run relationship between government expenditure and GDP per capita illustrates that lagged real government consumption expenditure has a positive and significant impact on real non-oil private GDP per capita while its short-run effect is found to be negative. Gross fixed capital formation in Saudi Arabia was reported at 26.44 % of total GDP in 2016, according to the World Bank.
Abhijeet Chandra (2014) reports in his findings that economic growth affects the level of government spending on education irrespective of any lag effects, but investments in education also tend to influence economic growth after some time-lag.Al Gifari Hasnul (2015) investigated the effects of government expenditure on economic growth in Malaysia using the time series data for past 45 years and found that education, defense and healthcare expenditure did not show any significant evidence of its impact on the economic growth.The determination of relationship between expenditure on education and economic growth has been a subject for most of the researchers who applied linear Granger Causality tests, which have ultimately proved to be crucial for identifying the predictive suitability of the time series models (Alexakis and Siriopoulos, 1999).
4.2 Review of Related TheoriesModern economists seem to harmonize upon the fact that education is the key to improve human capital and ultimately increase the economic outputs that is GDP of the nation. (Becker 1993) Thomas Friedman in his book ‘World is Flat’ (2007) gave an apt evidence as to why education (human capital) is an important tool for a nation’s economic growth.The renowned economist Horace Mann became angry on the capitalization and took steps to solve this problem, by proposing that taxes be used in order to support Massachusetts schools and that their government establish “common schools” throughout the state. These schools proved to be a success. This idea was spread rapidly to other states.
Mann’s idea matched with a country about to experience industrialization and growing demands of labor unions to educate their children. The Industrial Revolution generated a need for a more specialized, educated workforce. This is how education changed the whole scenario of that time.Imagine a condition when we went through industrialization and if the industries did not get educated people.
The situation would have got worsen if there were no educated people. It is impossible to run an industry without an educated workforce and industries directly affect the economy. Hence, this theory proves that there is a direct relationship between education and its effect on the economy of the country. Durkheim (the founder of functionalist theory) identified the latent role of education as one of socializing people into society’s mainstream. This “moral education,” as he called it, helped form a more?cohesive social structure by bringing together people from diverse backgrounds, which echoes the historical concern of “Americanizing” immigrants. Functionalists point to the ironic dual role of education in both preserving and changing culture.
Studies show that, as students progress through college and beyond, they usually become increasingly liberal as they encounter a variety of perspectives. Thus, more educated individuals are generally more liberal, while less educated people tend toward conservatism. Moreover, the heavy emphasis on research at most institutions of higher education puts them on the cutting edge of changes in knowledge, and, in many cases, changes in values as well. Therefore, while the primary role of education is to preserve and pass on knowledge and skills, education is also in the business of transforming them.Even Complexity theory supports education in being a major source of changing the world economies.
This theory helps us to understand how the traditional static economics is getting replaced by the modern dynamic approach of economics. This dynamic nature of economics has few major sources which include education among itself.5.
Methodology and AnalysisIn this study, we use an econometrics model to test the hypothesis that we set in the beginning. The study uses ordinary least squares OLS method to study the relationship between the dependent variable GDP growth and Gross fixed capital formation and see what are the independents variables (education variables) effect on economic growth in kingdom of Saudi Arabia during 35 years from 1981 to 2015. I have used the multiple regression analysis hypothesis testing shown that there is positive relationship between dependent variables and independent variables. I have taken dependent variable as GDP and four independent variables: Government expenditure on education, total (% of government expenditure), number of students (enrollment), number of teachers and number of schools. The hypothesis is conducted categorically on primary school, intermediate school and secondary (high) school. The last hypothesis is for general education (including all primary, intermediate and secondary school) considering 2 dependent variables: GDP and Gross fixed capital formation and 4 independent variables: Government expenditure on education, total (% of government expenditure), total number of students (enrollment), total number of teachers and total number of schools in general education in Saudi Arabia.Hypothesis I: primary schoolI find that for number of students, the p-value is 0.0329 and it is less than 0.
05. For the number of schools, the p-value is less than 0.0001 which is less than 0.05. For the number of teachers, the p-value is less than 0.
0001 which is less than 0.05. For Government expenditure on education, the p-value is less than 0.
0001 which is less than 0.05. I find that GDP and government expenditure on education, number of students, teachers, schools in primary school have a positive relationship.Hypothesis 2: intermediate school I find that for number of students, the p-value is less than 0.0001 which is less than 0.
05. For the number of schools, the p-value is 0.1929 and it is greater than 0.05. For the number of teachers, the p-value is 0.0002 and it is less than 0.05.
For Government expenditure on education, the p-value is 0.0945 and it is greater than 0.05. I find that GDP and number of students,number of teachers in intermediate school have a positive relationship while negative relation between GDP and government expenditure on education, schools in intermediate school in Saudi Arabia.
Hypothesis 3: secondary (high) schoolI find that for number of students, the p-value is 0.0147 and it is less than 0.05. For the number of schools, the p-value is 0.0059 which is less than 0.05. For the number of teachers, the p-value is less than 0.
0001 which is less than 0.05. For Government expenditure on education, the p-value is 0.7269 which is greater than 0.
05. I find that GDP and number of students, teachers, schools in secondary(high) school have a positive relationship while negative relation between GDP and government expenditure on education in Saudi Arabia.Hypothesis 4: General education (all primary, intermediate and secondary)A: GDPFirst, considering dependent variable as GDP, I find that for number of students, the p-value is 0.0020 and it is less than 0.05. For the number of schools, the p-value is less than 0.0001 which is less than 0.05.
For the number of teachers, the p-value is less than 0.0001 which is less than 0.05. For Government expenditure on education, the p-value is 0.0097 which is less than 0.
05. I find that GDP and government expenditure on education, number of students, teachers, all schools in general education have a positive relationship.B: Gross fixed capital formationNow considering dependent variable as Gross Fixed Capital Formation, I find that for number of students, the p-value is 0.0112 and it is less than 0.05. For the number of schools, the p-value is less than 0.0004 which is less than 0.
05. For the number of teachers, the p-value is less than 0.0001 which is less than 0.05. For Government expenditure on education, the p-value is 0.0096 which is less than 0.05. I find that Gross Fixed Capital Formation and government expenditure on education, number of students, teachers, all schools in general education have a positive relationship.
6. CONCLUSION AND RECOMMENDATIONSThe paper attempts to study relationship between education growth and economic growth (GDP and Gross Fixed Capital Formation). I use the linear regression model and ordinary least squares OLS method to study the relationship between the dependent variable GDP growth and Gross fixed capital formation.
When I use the linear regression model, I find that GDP and government expenditure on education, number of students, teachers, schools in primary school have a positive relationship in primary education. I find that GDP and number of students,number of teachers in intermediate school have a positive relationship while negative relation between GDP and government expenditure on education, schools in intermediate school in Saudi Arabia. I find that GDP and number of students, teachers, schools in secondary(high) school have a positive relationship while negative relation between GDP and government expenditure on education in Saudi Arabia. I find that both GDP and Gross fixed capital formation have a positive relationship with government expenditure on education, number of students, teachers, all schools in general education.
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