¹Xu Yin,²Guo Jiayi,³Doris Padmini Selvaratnam

^1,2,3Faculty of Economics and Management, Universiti Kebangsaan Malaysia.

DOI : https://doi.org/10.47191/ijsshr/v7-i06-67

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ABSTRACT

This study examines the impact of average years of schooling on the GDP per capita change rate in Malaysia, providing empirical evidence that highlights significant insights for educational policy and economic development strategies. Utilizing Vector Autoregressive (VAR) models and Granger causality tests, this paper explores the dynamic relationships between education expenditure and GDP growth within the Malaysian context. We find that the relationship between the increase in average years of schooling and the increase in GDP per capita is positive at first, then decreases rapidly, and then increases again. Specifically, our analysis of data from 1990 to 2020 demonstrates that enhanced educational attainment contributes significantly to the labor market’s skill level, which in turn boosts economic productivity and technological innovation capacity. The study challenges the conventional view that higher educational investments lead automatically to better economic outcomes and stresses the importance of educational quality alongside quantity. By providing a detailed variance decomposition, we find that changes in schooling years explain about 15% of the variations in GDP per capita growth rates. These results underscore the critical role of education in Malaysia’s economic modernization and suggest that policy interventions should not only increase educational investments but also enhance the quality of education to maximize economic returns. Future research should further investigate the causality and interactions between educational quality and economic growth to refine educational policies effectively.

KEYWORDS:

Average years of schooling, GDP per capita, VAR model, Granger causality test, Impulse response, Variance decomposition

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Volume 07 Issue 06 June 2024