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M & D FORUM Empirical Study on Education Investment and Economic Growth MA Fengqin Jiaozuo Normal College, Jiaozuo, Henan, P.R.China, 454001 Abstract: China is in the process of changing from a populous country to a resources country. Education will not be ignored in a strategic position. And education investment also has an immeasurable impact on economic growth. By the empirical research, on the basis of the statistics published by the State Statistics Bureau in 2001-2009, the article analyzed the relationship between the education investment and economic growth and proved their causality by Granger causality test, ADF test and co-integration test. The results showed that education investment and economic growth had a significant correlation (0.995) and the education investment also had a significant effect in promoting economic growth. On this basis, proposed that our government should increase the investment in education and control the education investment by State finances and the diversification of Education investors. Keywords: Education investment, Economic growth, Correlation analysis, Granger Causality test, ADF test, Co-integration test 1 Introduction In the traditional theory of economic growth, investment in physical capital is more effective than investment in education for promoting economic development. It said that education was a consumer business and education investment was a kind of economic consumption, which couldn't make large or obvious benefits at all. So we should not give too much concern or attention. However, with the continuous development of society, people began to doubt the traditional economic growth theory and gradually recognized that education played a very important role in the economic growth. Since Human Capital theory was put forward in the 20th century by Theodore Schultz, an American economist, the effect of education investment for economic Growth caused the Western and global academia’s close attention. Schultz's research showed that the growth of agricultural production after the war in the USA, only 20% caused by the accumulation of physical capital, and the remaining 80% mainly caused by education and the related technology. Millington, a famous scholar of the Soviet Union made use of Labor Simplified Rate, which calculated 30% of national income growth was made by the education. The U.S. economist Lewis in his "economic growth theory" directly attributed "growth of knowledge caused by education” to one of the three reasons of economic growth. Education investment is an investment behavior .It is a country or region in the field of education to develop different proficiency of the labor force and all kinds of Specialists and thus enhance people's ability to work. It contains two meanings: First, education investment is put into the field of education, rather than other areas of human and material resources of the currencies; second, the purpose of education investment is to cultivate and enhance human capacities. Since 1960’s countries competed to have an education reform, increased education investment, improved the quality of education to enable workers to adapt to the needs of economic reform and development. Rapid economic growth of Post-war Japan and the Asian "tigers" has become a successful model that showed education investment promoted economic growth. According to the research, nearly 20 years from 1960 to 1978, the average real per capita GDP growth is 4.68% in the implementation of the strategy of investment in education-intensive countries and regions, compared with 3.86% in the implementation of the strategy of physical capital Benefits of education investment has an indirect, long-term, diversity and scalability features. Its promotion for economic growth has been recognized. With the expansion of education investment, the contribution to GDP is also growing. "Education investment is the socio-economic growth", "education 201 M & D FORUM investment is the most beneficial strategic investment" and so on has been recognized by more and more people with lofty ideals. To further confirmed that education investment affected economic growth, the subject shows you a series of empirical research about the relationship between education investment and economic growth, and revealed that the relevant level and influence between them , which fully shows that education is in a powerful strategic position and have an immeasurable influence in the process of changing from a Populous country to a resources country, which Provides the objective numbers and reasonable proposals for our government 's Investment decisions 2 The correlation analysis between education investment and economic growth China's education investment is multi-channel, multi-faceted, and National financial education fund is the main body of education investment. In this article, the education investment research only refers to the national financial education fund .According to the statistics from the state statistics bureau in 2001-2009, there is a related simple analysis. The time variables sequence GDP and E respectively represent GDP and financial education investment. Form 1 shows that the Pearson Correlation between them is as high as 0.995.Obviously, there is a very close relations between education investment and GDP growth Form 1: GDP E The correlation coefficient between E and GDP GDP Pearson correlation coefficient 1 of GDP Significant level. (Two-tailed test ) Sample 14 E Pearson correlation 0.995(**) coefficient Significant level. (Two-tailed 0.000 test) Sample 14 E 0.995(**) 0.000 14 1 14 Note:"**" is the 0.01 significance level in the next, that mark is a significant correlation coefficient (two-tailed test) 3 Causality between education investment and GDP growth and co-integration test Education Investment can promote economic growth, in turn, economic growth increased education investment, promoting among them is mutual, in this "double increase", Education investment is considered the most fundamental reason. In this article, to explain their causality by the Granger causality test on the basis of the sample data. 3.1 The granger causality test The basic idea of Granger test is: If Y' changes caused by X'changes, then X should help predict Y, namely Y Y on past values of the regression, the increase in the value of X in the past as an independent variable should be significantly increased the explanatory power of regression. Test whether X causes Y causes changes in the basic process is following: 3.1.1 The original assumption "X is not a reason for the change caused by Y" 3.1. 2 He Y value of Y's and X's lag behind the value of the regression, the establishment of unrestricted regression model: yt = a0 + a1yt 1 + a2yt 2 + ...amyt m + bpxt p + ... + bqxt q + residualt 1.1 202 M & D FORUM 3.1.3 The lag Y Y values only regression, the establishment of a regression model with constraints: yt = a0 + a1yt 1 + a2yt 2 + ... + amyt m + residualt 1.2 3.1.4 With the residual sum of squares regression model and calculated F statistic, testing regression coefficients. .., is not zero at the same time significantly. If it is to refuse to "X causes Y is not a reason for the change," the original assumption that X is the reason for the change caused by Y, X and Y that exists between cause and effect. Calculated using EVIEWS software, education, investment and GDP, Granger Causality between causality test results are as follows in Table 2. Form 2: Granger test of lag 1 Lag: 1 Null hypothesis Number F statistics E change is not caused by changes in GDP Change is not caused by changes in GDP 13 6.80247089 0.46172940 Significant Level 0.02612338 0.51223816 Change is not caused by changes in GDP causes 0.46172940 0.51223816 E As can be seen from the table: Gross domestic product (GDP) than investment in education (E) the reason; however, investment in education (E) is the gross domestic product (GDP) reasons. Form 3: Granger test of lag 2 lag 2 Null hypothesis Number F statistics E change is not caused by changes in GDP Change is not caused by changes in GDP 12 18.3190231 2.31702586 Significant Level 0.00165315 0.11896030 Change is not caused by changes in GDP causes 2.31702586 0.11896030 E Table 3 shows: Gross domestic product (GDP) is investment in education (E) the reason; the same investment in education (E) is gross domestic product (GDP) reasons. Form 4: Granger test of lag 3 lag 3 Null hypothesis Number F statistic E change is not caused by changes Change is not caused by changes in GDP 11 8.69787252 3.63774133 The Ratio of Change 0.03161989 0.09214711 Conclusion: In addition to 1 lag Granger test showed that GDP is not a reason for investment in education, but investment in education is the reason of gross domestic product, the lag is greater than or equal to 2, when gross domestic product and education investment are mutually reinforcing. But after the lag is greater than 2, the causality is more stable. In view of the relationship between the two, we are on their regression analysis, regression results in Table 5: Variable E C Form 5: the regression analysis of GDP and E Regression Standard error Statistic T Coefficient 33.336500 0.97392709 34.2289484 10711.829 2727.39642 3.92749255 203 Significant level. 2.460e-13 0.002007 M & D FORUM R2 statistic Adjusted R2 statistic 0.9898616 0.9890167 The standard error of regression function Residual sum of squares Log-likelihood function value DW statistic 4786.7381 explanatory variables mean standard deviation explanatory variables Akaike statistic 93160.67 of 45674.55 19.91664 274954347 Schwarz statistic -137.41654 F statistic 20.00794 1171.620 0.4922715 2.460e-13 (significant level Fstatistic) The results shown in the adjusted R2 (0.989016)> DW (0.4922715) test results, indicating that there is pseudo-regression equation, it is because the original time series of GDP and non-EDU two stable, there is autocorrelation, which requires elimination of self- correlation. 3.2 ADF test The above analysis shows that the data is not stable, which requires us to carry out unit root test to see if the data is several order of non-stationary series. We use national financial education fund as represent variables instead of the education investment. The total economic output indicators of testing the effect of education investment use GDP. GDP Form 6: Test results of each variable unit root 5% ADF test value 1% confidence confidence 1.3348 -2.7989 -1.9725 N ∆GDP -0.5622 -4.3261 -3.2195 N ∆∆GDP -5.3367 -4.7492 -3.5486 Y E 2.5704 -2.7989 -1.9725 N Steady ∆E 0.5971 -4.3261 -3.2195 N ∆∆E -4.2971 -4.6405 -3.335 Y We can see GDP and E of the original data is no stationary from the form, but the second-order difference of GDP and E is smooth, so the sequence is the second-order non-stationary sequence, we can use differential return to eliminate the pseudo-regression and the autocorrelation. 3.3 Cointegration test To find out whether there is a stable relation between GDP and E; we need to test the data cointegratly to see whether there is a long-term stable relationship between them, test results is following: Form 7: Cointegration test results between GDP and education investment number of assumptions Cointegrati Maximum eigenvalue Likelihood ratio Threshold of 5% Threshold of 1% equation cointegration on variable GDP 0.8597849733 27.915355123 15.41 20.04 None ** E 0.3035097353 Note: 3.3404175602 3.76 6.65 At most 1 * ① * indicates 5% and 1% level of significance rejected the null hypothesis ② Cointegration lag order as an According to the value of statistics: 27.9 >15.41, 3.34<3.76, so there is a cointegration relationship 204 M & D FORUM between the GDP and E. This shows that education investment and economic growth has a long-term equilibrium. It means that education investment has a certain role in promoting economic growth. They have a long-term stable relationship and a common stochastic trend. 4 The regression analysis of China's educational investment growth on GDP growth Regression analysis is a statistical analysis method reaching influence level of the changes of a variable or a set of variables (independent variables) on the changes of another variable (dependent variable).In this article, our purpose is to verify the impact of education investment on GDP, and we do the regression analysis by using the GDP as the dependent variable, E as the independent variables. The results show that there is an inherent dependency between the total GDP in China and the education investment, but some autocorrelation problems. In order to reveal the real inherent dependencies between them, we must eliminate the sequence autocorrelation problems. Difference method we use to make the model residuals to maintain sequence independent, self-relevant. Through above tests and analysis, we know that the second-order difference which caused by the dependent variable and independent variable is stable, we use the least square method to estimate regression, the regression results is following: Form 8: The differential regression analysis about China GDP and education investment Variable Regression Standard error T statistic Significance E 32.080388 1.31681296 24.3621450 8.601e-09 C 15139.429 4227.92174 3.58082064 0.007179 AR(1) 1.0055788 0.29488116 3.41011576 0.009221 AR(2) -0.4695788 0.23998552 -1.95669675 0.086096 R2 statistic 0.9968855 mean of explanatory variables 103499.3 2 R Adjusted statistic 0.9957176 the standard deviation of explanatory 40571.13 variables The standard error of regression 2654.9575 Akaike statistic 18.86744 Residual sum of squares 56390397. Schwarz statistic 19.02908 Log-likelihood function value -109.20467 F statistic 853.5636 D statistic 2.2244163 significant level (F statistic) 2.312e-10 From the Contrast between form 8 and form 5, we can see the DW rise from 0.4922 to 2.22, the residual serial autocorrelation has been eliminated successfully. Multiple correlation coefficient has also been greatly enhanced from the original 0.989 to 0.996, adjusted statistic R2 is 0.9957, it proved that independent variables can explain about 99.57% changes of the dependent variable, the regression model statistics F still showed a highly significant gender the regression model, explanatory variables and AR (1), AR (2) t-statistics in the regression model are consistently passed the test, regression coefficients were significantly non-zero. Thus, we got a generalized difference regression model between the total financial investment in education and the total GDP: GDP = 32.080388 * E +15139.4294 + [AR (1) = 1.005578, AR (2) =- 0.4695788] 4-1 From the regression results we can see that the total financial investment in education increased by 1 unit, total GDP increased by 32 units, financial investment in education changes has an important effect on growth of GDP. 5 Conclusions and recommendations On the basis of the statistics published by the State Statistics Bureau in 2001-2009, though some 205 M & D FORUM analysis about the education investment and economic growth in our country, it showed the correlation coefficient between them is as high as 0.995.Obviously, there is a very close relation between education investment and GDP growth. though the regression analysis by building models, it proved there is an obvious causality between them, the changes of the education investment has an important effect on growth of GDP .they are Important implications for our country's education investment . 5.1 Increasing national financial education fund Investment in education is a basic, strategic investment for Country's long-term development. Since the reform and opening, although the absolute amount of our budget expenditure for education and scientific research is growing, but the relative amount that the Proportion in GDP is relatively low. And it has some volatility. 2001 2.79 Form 9: China's GDP, the proportion of education budget in comparison (%) 2002 2003 2004 2005 2006 2007 2008 3.32 2.90 2.84 2.79 2.82 3.01 3.48 2009 3.59 According to related statistics, the average level of Education investment in the proportion of GDP in the world is 4.9%, 5.1% in the developed countries, and 4.1% in the less developed countries. f form 9, China's education budget in GDP, is significantly lower, which will seriously restrict the development of education in China and Finally affect the contribution of education investment on economic growth. Therefore, we need to continue to increase state education budget input in the future, and strive to achieve the target that "the Proportion of the education investment in GDP increased to 4% in 2012 "provided in "National long-term educational reform and development programmed guidelines" (2010-2020). 5.2 State finances macro-control to education investment Education investment not only has an economic value but also has a social value. It is directly related to the national economic growth and social progress. National investment in education should be dominant. The dominant role of the State financial investment in education is reflected in the financial macro-control, transfer payment functions. Because of the uneven economic development, large regional differences in education investment, from the regional distribution, the allocation ratio of China's education funding is 54.4% in east, 27.52% in center, 18.08% in west, showing a decrease from east to west. According to local realities, the central finance should in a direction conduct education special transfer payment and the overall macro control step by step so that reduce regional differences and promote the balanced development of education. 5.3 Diversification of the education investors Subject to the constraints of lack of financial resources, expanding the non-financial investment in education is a feasible, quick way. Multi-agent, multi-channel education is not only consistent with international practice but also fit our country's reality of Lack of financial resources and the numbers of students in school. For the Institutions and Enterprises, the social organizations and individuals starting schools, the government should encourage and support and expand the investment scale of non-government instead of all governmental schools. The Government should also create conditions to attract foreign investment and start International Cooperative Education under the allow of our low and rules. Basic education schools should depend on the local government. Higher education mainly depends on the central, provincial government, at the same time, with the community participation. The vocational technology school and the adult education mainly rely on the support of the government, industry, business; institutions establish schools and social aspects' participation. National policies should reflect the encouragement for the social schools, such as allowing the enterprises and Personal funds invested in the school construction to list as pre-tax expenditures; allowing Raise funds by Stock 206 M & D FORUM form, for work-study program, providing social services, fiscal and tax policy, the government should give due supports to make businesses, schools self-financing. References [1]. Hu Xiaoying. Han Feng. 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