IMPACTS OF FINANCIAL DEVELOPMENT, ICT AND GOVERNMENT EXPENDITURE ON EDUCATION ON THE ECONOMIC GROWTH OF DEVELOPING COUNTRIES
 
Hui Shan LEE¹, Shyue Chuan CHONG², Bik Kai SIA³

¹Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman, Selangor, Malaysia hslee@utar.edu.my;
²Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman, Selangor, Malaysia chongsc@utar.edu.my;
³Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman, Selangor, Malaysia siabk@utar.edu.my

Abstract

Universal primary education is a major issue for developing countries because they do not have appropriate financial resources necessary to create a good quality of learning environment. Funds pledged by the international community are generally not sufficient enough to allow developing countries to establish an education system for all children. This article examined the impacts of financial development, information telecommunication and technologies (ICT) and government expenditure on education in 44 upper-middle-income countries from the year 1991 to 2016. By using a static panel regression model, it was observed that financial development and ICT imposed a positive and significant impact on economic growth. ICT postulated a non-linear (inverted U-shape) effect on growth, which indicated that at the initial stage ICT impeded growth but ICT stimulated growth at the later stage. Interestingly, government expenditure on education did not postulate a significant effect on growth but when government expenditure on education interacted with financial development, these interaction effects became significant and negative.  In middle-income countries, even though financial development has achieved a certain minimum level, own financing for education is not sufficient to improve economic growth. The implication of this study showed that developing countries cannot depend solely on their own financing for education — there is also a need for more foreign aid.

Keywords: developing countries; financial development; ICT; government expenditure on education; interaction effect; non-linear effect