Do Governance Indicators Matter for public spending? The Case of Sri Lanka

Abstract

The study examined whether governance determines public spending's efficacy in improving education outcomes employing time series data in Sri Lanka. Augmented Dickey-Fuller unit root test, Johansen’s co-integration tests, and the Vector Error Correction Model were employed to find the study objective. The results detected that governance determines public spending's efficacy in improving educational status in the long run, whereas it does not determine in the short -run. When estimated without the interaction of governance indices, the results of education spending have a positive relationship with the outcome of education. In contrast, when estimated without the interaction of corruption, it showed a negative relationship on the outcome of education in the long- term. Though, the results of public spending with the interaction with political stability and the absence of violence revealed that it has virtually no impact on education outcomes. However, in the short run, the results found that when estimated without the interaction of governance indices and with the interaction of governance indices, public education spending is not significant on the outcome of education. The study shows that the government should improve the efficiency of using education expenditures with good governance and, promote the positive effect of government education expenditures as the state of governance is not influence educational status positively.