1 Differential Effects of the Components of Higher Education Expenditure on U.S State Economic Growth Valeska Araujo* McNair Scholar University of Missouri and Bradley R. Curs Educational Leadership and Policy Analysis University of Missouri cursb@missouri.edu 573.882.2759 (corresponding author) AERA Conference Paper (Preliminary – Please do not cite) March, 2008 Abstract: Recently, the importance of human capital investment in the United States has increased leading to increased tuition levels. This dramatic increase in tuition has raised a debate as to what should be the proper public investment in human capital. Empirically, evidence can be found both supporting and refuting the relationship between higher education spending and state economic growth. This paper expands upon this literature by modeling the expenditure components of higher education institutions and whether they asymmetrically relate to economic growth. The findings indicate that investment in the research capacities of higher education yield the highest return on investment, and thus states should create incentives for their institutions to actively pursue research objectives. * Valeska Araujo would like to thank the University of Missouri McNair Scholars Program for financial support.