Education and economic growth in Pakistan: A cointegration and causality analysis Muhammad Afzal, Hafeez Ur Rehman, Muhammad Shahid Farooq *, Kafeel Sarwar University of the Punjab, Pakistan 1. Introduction Progress and prosperity of a country depends upon the educational choices available to the masses. Education not only trains the young ones to understand and cope with the complexities of economic growth, but also serves as a lever for its enhancement. It guarantees the quality of human life which ensures socioeconomic growth in a country (United Nations, 1997). Asian countries such as South Korea, India and China have achieved wonderful economic growth in the last few decades through agricultural and educational reforms. The economic growth especially growth in agricultural yield of Indian Punjab has beaten the Pakistan’s economic growth by a wide margin in last six decades only because of land reforms and mass education. The three land reforms in Pakistan (one in 1959 and others in 1972 and 1977) have failed to lessen the strong hold of landlords on the economic and political decision making (Chaudhry, Malik, & Ashraf, 2006). The expenditures on education and health have always remained very low (about 2.5% of GDP) even lower than military expenditures in Pakistan. The cut in current high military spending of both Pakistan and India can further raise their education level and hence economic development. Poor and corrupt taxation system failed to generate sufficient revenue to uplift the schooling and health facilities for masses in Pakistan. The poor and fixed income groups pay most of the taxes. The rich especially big International Journal of Educational Research 50 (2011) 321–335 A R T I C L E I N F O Article history: Received 8 June 2010 Received in revised form 19 September 2011 Accepted 10 October 2011 Available online 17 November 2011 JEL classification: C13 C51 I21 N1 O51 O53 Keywords: Education Economic growth Causality Cointegration A B S T R A C T This study explored the cointegration and causality between education and economic growth in Pakistan by using time series data on real gross domestic product (RGDP), labour force, physical capital and education from 1970–1971 to 2008–2009 were used. Autoregressive Distributed Lag (ARDL) Model of Cointegration and the Augmented Granger Causality Approach given by Toda and Yamamoto (1995) were applied. Cointegration among economic growth and education has been found. The findings of this study also indicate the existence of the feedback causality between education and all levels of education with economic growth. Among all levels of education, general higher education causes economic growth highly and most significantly while the level of confidence of causing economic growth to school education is found to be the highest. Labour force as compare to physical capital appeared to be a key factor in understanding the relationship between education and economic growth. This study recommends more investment in university education so that economic growth can be further accelerated, that in turn, leads to further education and hence economic growth. ß 2011 Elsevier Ltd. All rights reserved. * Corresponding author. E-mail address: drdrmshahid@gmail.com (M.S. Farooq). Contents lists available at SciVerse ScienceDirect International Journal of Educational Research jo u r nal h o mep age: w ww.els evier.c o m/lo c ate/ijed ur es 0883-0355/$ – see front matter ß 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.ijer.2011.10.004