The Role of Education and Investment in Driving Economic Growth: Econometric Analysis

This project presents a robust econometric investigation into how education expenditure and capital investment influence GDP growth across countries from 2000 to 2021. Using data from the World Development Indicators (World Bank), the study employs panel data analysis and multiple linear regression to evaluate both direct and complementary effects of education, investment, trade openness, and labor force participation on economic performance.

Background and Motivation:
The project is anchored in the human capital theory, which posits that education improves workforce productivity and innovation. Simultaneously, infrastructure and industrial investments fuel economic capacity and efficiency. By combining these two dimensions with policy-level controls like trade and labor dynamics, this research delivers a holistic model of economic growth determinants in both developed and developing nations.

Methodology:
Data Source: World Bank’s World Development Indicators (WDI)

Time Frame: 2000–2021

Scope: Multiple countries, cross-sectional panel data

Dependent Variable: GDP Growth Rate

Independent Variables:

Adjusted savings on education (proxy for education investment)

Gross fixed capital formation (% of GDP)

Trade openness (% of GDP)

Labor force participation rate

Techniques Used:

Panel regression modeling (GDP_growth ~ Education + Investment + Trade + LaborForce)

Robust standard errors to handle heteroskedasticity

Diagnostic checks: VIF for multicollinearity, Breusch-Pagan test, Durbin-Watson for autocorrelation

Key Findings:
Education spending shows a statistically significant positive effect on GDP growth across countries, supporting the theory that investment in human capital is vital for long-term prosperity.

Investment in infrastructure and industry amplifies this effect, especially when paired with a skilled labor force.

Trade openness and labor force participation serve as complementary forces, enhancing the impact of education and investment on growth.

Diagnostic tests confirmed model robustness, though limitations such as aggregate national-level data and unaccounted governance quality were acknowledged.

Visualization & Interpretation:
Histograms and scatter plots revealed skewed distributions in education investment and strong but variable associations with GDP growth.

The study interprets these variations as outcomes of policy efficiency, institutional frameworks, and differing stages of economic development.

Skills and Tools Demonstrated:
Cross-country economic modeling with panel data

Hypothesis-driven regression analysis using econometric theory

Diagnostic testing and result validation

Data preprocessing for time-series panel datasets

Effective communication of statistical insights to inform economic policy

Impact & Application:
This study is highly relevant for economists, policymakers, and development strategists seeking to understand the causal pathways between education, capital investment, and national prosperity. It reinforces the importance of efficient education funding and complementary economic reforms to achieve sustainable development goals (SDGs), particularly in human capital and infrastructure.