Public education expenditure and enrollment rates: Recent evidence from Ethiopia

This study investigates the effect of public education expenditure on primary and secondary school gross enrollment rates in Ethiopia using annual time-series data from 1980/81 to 2023/24. Applying the Autoregressive Distributed Lag (ARDL) model, Granger causality, and various robustness checks—including Fully Modified OLS, Canonical Co-integration Regression, and non-linear specifications—the study finds a statistically significant and positive long-run relationship between government education spending and school enrollment. The analysis also reveals that active labor force participation positively influences enrollment in the long term, underscoring the feedback loop between education and employability. However, an increase in the teacher-student ratio negatively affects enrollment, reflecting supply-side constraints amid rising demand. While inflation and real GDP growth show expected trends, their effects are statistically insignificant. Granger causality results confirm that education expenditure drives enrollment rather than the reverse. The results align with Human Capital and Endogenous Growth theories, underscoring education spending as a vital catalyst for human capital development. The findings highlight the need for a multifaceted approach that combines increased financial investment with institutional reforms to improve access and quality in education. The study offers valuable policy insights for Ethiopia and similar developing economies aiming to leverage education as a tool for inclusive growth and human capital development.