Analysis of the Relationship between Public Debt Service and Education Expenditure: A Pooled Mean Group Approach

Abstract

This study examined the relationship between public debt service and education expenditure in 15 Sub-Saharan and South American countries from 1995 to 2022. Utilizing the Pooled Mean Group (PMG) estimation method within an Auto Regressive Distributed Lag (ARDL) framework, evidence of cointegration between public debt service and education expenditure is presented. PMG regression results indicate that, in the short run, public debt service does not have a statistically significant impact on education expenditure per student. However, in the long run, an increase in government debt service exerts a significant negative effect on education expenditure. This result aligns with existing literature, which argues that increased debt obligations divert financial resources away from essential public services, including education. The Hausman test confirmed that the PMG estimator was more efficient than the Mean Group (MG) and Dynamic Fixed Effect (DFE) estimators. These findings suggest that maintaining low debt levels is crucial to prevent adverse impacts on educational funding, which is vital for long-term economic development.