The impact of education on economic growth in South Africa.

Abstract

ABSTRACT Education is acknowledged as a crucial mechanism of advocating economic growth of developing countries. The theoretical model of education on economic growth originates from the human capital theory which attests that investing in education yields positive externalities such as increased efficiency and productivity, improved technology, better salaries, and innovation and knowledge capacity. This study investigated the impact of all levels of education and its positive externalities such as better salaries, the field of study, and enhanced innovation, research and development, on economic growth in all the nine provinces of South Africa using yearly panel data from 2001 to 2014. The study applied XLSTAT econometrics model to test for stationarity, Johansen co-integration and Vector Error Correction Modelling (VECM) Lagrange Multiplier (LM) and Jacque-Bera tests. The co-integration tests showed that education at all levels, except for matric for most provinces, has a positive effect on economic growth and that the outcome fluctuates across the provinces. For matric and GDP, co-integration was observed for only KwaZulu-Natal and Mpumalanga provinces. Government expenditure towards education, the field of study and innovation, research and development also play a role in the economic growth of South Africa. The results emphasize that the South African government must allocate more funding towards education funding, encourage more innovation, research and development, and focus more on improving the quality of the education system. Keywords: Economic growth, education, panel data, unit root, stationarity, co-integration.