Education expenditure and economic growth under decentralization: An empirical study of Sri Lanka and Canada.

In this study the authors undertake an empirical investigation into the nexus between government education expenditure and economic growth in Sri Lanka during the period 1960-2015. The direct and indirect effects of government expenditure on economic growth are estimated. The impact of decentralization of education sector in1987 on these effects are analysed. Sri Lanka's experience under decentralization (1988-2015) is compared to the experience of Canada (1990-2014). The study finds a negative direct effect and a positive indirect effect of education expenditure on economic growth in Sri Lanka, and a positive direct effect and a negative indirect effect in Canada. The study also finds a positive direct effect and a negative indirect effect of non-education expenditure of government on economic growth in Sri Lanka. Redirecting government expenditure in favour of education, without substantially improving factor productivities in education sector, will generate a negative impact on economic growth in Sri Lanka.