Analysis of Educational Investment Spillovers and Their

Mechanisms: Based on a Log-linear Model

Dan Hu

1,†

and Jing Liang

2,*

Hu Bei Business College, Wuhan, China

Chongqing Vocational College of Transportation, Chongqing, China

Corresponding author

Keywords: Investment In Education, Spillovers, Transmission Mechanism, Log-Linear Model.

Abstract: Education investment is a key factor driving China's economic growth and an important driver of economic

transformation and upgrading. Based on this, this paper puts forward three hypotheses on the mechanism of

education input promoting economic growth, using China's 2001-2019 statistics, a log-linear model, and SPSS

data processing software to analyze the intrinsic mechanism of China's education input promoting economic

growth. The results show that (1) the increase in educational input promotes economic growth, to a certain

extent, through the intermediary mechanism of increasing scientific and technological output, and educational

input improves the transformation of scientific and technological achievements, which makes economic

growth gain the necessary growth driver, and then promotes economic development. (2) Educational inputs

promote economic growth through the mediating transmission mechanism of human capital, which in turn

affects production efficiency. Education investment raises the level of human capital, which makes economic

growth obtain the necessary human capital supply and thus improve the level of economic growth.

Recommendations are also made in terms of both educational investment and educational equity.

1 INTRODUCTION

The relationship between investment in education

and economic growth has been a classical issue

studied by scholars (Du, 2020, Zhao, 2020).

Neoclassical economic growth theory says that

economic growth is attributed to three major factors:

capital accumulation, labor input, and technological

progress, while investment in education has an

important role in promoting technological progress

and human capital accumulation. In other words,

investment in education can both directly promote

economic growth and indirectly promote economic

growth through the existence of intermediary factors,

which means that there is a spillover effect of

investment in education.

China, as a late-developing catch-up economy,

has been developing for decades, creating a miracle

of world economic development and attracting high

attention globally. China's education spending has

grown year after year, surpassing 5 trillion yuan in

2019, accounting for 5 percent of the country's GDP.

What role does China's education investment play in

the process of economic growth? And what is the

transmission mechanism of the spillover effect of

education investment? This paper will focus on the

above two questions for theoretical analysis and

empirical research.

2 ANALYSIS OF THE

TRANSMISSION MECHANISM

OF INVESTMENT IN

EDUCATION FOR ECONOMIC

DEVELOPMENT

Tang Lizhi and Li Yujia construct a three-period

intergenerational overlap model along with the

formation mechanism of endogenous skill premiums,

in which "educational inputs form human capital and

human capital is transferred between generations",

and find that the effect of educational inputs on skill

premiums differs under different human capital

levels. Under China's dualistic human capital

structure, public education investment plays a role in

reducing the skill premium when the level of human

286

Hu, D. and Liang, J.

Analysis of Educational Investment Spillovers and Their Mechanisms: Based on a Log-linear Model.

DOI: 10.5220/0011174200003440

In Proceedings of the International Conference on Big Data Economy and Digital Management (BDEDM 2022), pages 286-290

ISBN: 978-989-758-593-7

capital is low and high, but private education

investment expands the value of the skill premium

when the level of human capital is low (Tang, 2020,

Li, 2020). Wu Weiwei, on the other hand, used fixed

effects, spatial measures and threshold effects models

based on provincial panel data to identify differences

in financial inputs to higher education in regions with

different levels of growth. The results show that

although economic growth is conducive to promoting

higher education financial investment, regions with

higher levels of economic growth do not show a

stronger willingness to invest in higher education

compared to other regions; local higher education

financial investment is influenced by economic

proximity and there is a significant spatial

demonstration effect (Wu, 2021). Using panel data of

30 provinces in China from 2006-2015, Jiang

Yucheng and Jia Ting Yue examined the economic

effects of public education expenditure structure on

industrial labor productivity and identified the

channels of influence of various types of public

education expenditure from the perspective of human

capital accumulation (Jiang, 2020, Jia, 2020).

The above studies show that human capital is one

of the important factors driving economic growth.

Education is of great importance in promoting human

capital formation. On the one hand, educational

inputs promote the accumulation of knowledge,

technical proficiency and thus improve the

knowledge skills and technical skills of individuals.

The general increase in individual productivity

promotes the increase in productivity of the society

as a whole, which in turn promotes economic growth.

On the other hand, educational inputs contribute to

knowledge accumulation, which in turn influences

the creation of new knowledge and the birth of new

technologies, which in turn enhances the quality of

the country's human capital and promotes the

development of science and technology, which

further boosts economic growth, thus creating a

significant spillover effect on economic

development. Therefore, we propose hypothesis 1.

H1: Educational inputs contribute to economic

growth by raising the level of human capital.

Developing higher education is a positive move to

cope with population aging and drive industrial

structures upgrading. Using inter-provincial panel

data from 2009-2018, Wang Xiyuan and Liang

Qiaoling find that the increase in higher education

investment helps to attenuate the negative impact of

population aging on industrial structural upgrading

through empirical analysis. The promotion effect of

higher education investment on industrial structural

upgrading is mainly based on the mediating

mechanism of advanced human capital; while the

mediating mechanism based on science and

technology output is not significant, indicating that

the supply of science and technology output of

universities fails to match effectively with the

demand for science and technology for industrial

structural upgrading (Wang, 2021, Liang, 2021).

Educational input can accelerate the free flow and

optimal allocation of social resources among

industries, which is an important means to promote

the optimization and upgrading of industrial

structure. By constructing an index of industrial

structure rationalization and upgrading, Deng

Chuang and Fu Rong examined the changing pattern

and regional differences of China's industrial

structure from two dimensions of industrial structure

layout optimization and industrial structure

upgrading, and further empirically investigated the

non-linear influence mechanism of financial

education investment on the degree of industrial

structure rationalization and upgrading in China

based on a panel smoothing threshold regression

model. The study shows that the financial investment

in education in China can play a better role in

promoting the optimization and upgrading of

industrial structure, and the impact of financial

investment in education on the rationalization and

advanced degree of the industrial structure shows

significant threshold characteristics as the level of

education increases (Deng, 2017, Fu, 2017).

Matching human resources and industrial

transformation and upgrading is an important

influencing factor of industrial transformation and

upgrading. By constructing an index system for

evaluating the suitability of industrial structure

transition and human resources development, Fu Tao

used the suitability evaluation model to evaluate the

suitability of both transition and development in

China from 2000 to 2015, showing that the overall

matching degree between the two in China showed a

rising trend and asymmetric characteristics (Fu,

2016). Educational inputs have a spillover effect

through knowledge, i.e. they further promote the

innovative activities of enterprises through research

and development and creativity, which in turn

promote industrial upgrading and influence economic

development. The mechanism of industry-university-

research can be utilized to promote technological

innovation and knowledge transformation through

the integration of schools and enterprises, and thus

promote the optimization and upgrading of the

industrial structure by rationalizing the full and

effective use of resources. Therefore, hypothesis 2 is

proposed in this paper.

Analysis of Educational Investment Spillovers and Their Mechanisms: Based on a Log-linear Model

287

H2: Increased inputs to higher education increase

science and technology output, which in turn drives

industrial structural upgrading.

There is a mutually reinforcing relationship

between technological progress and economic

growth. Qianqian Sang and Yuxiang Li studied the

mechanism of the role of education investment in

promoting high-quality economic development

through panel data of 237 prefecture-level cities from

2006-2016 and found that education investment

improves total factor productivity and enhances

economic development dynamics by promoting

independent innovation and enhancing the ability to

digest and absorb foreign technology and innovation

(Sang, 2021, Li, 2021). Education is the foundation

of technological innovation, and education funding

investment is an important factor influencing regional

technological innovation. Ge Yao, on the other hand,

based on the panel data of 29 provinces in China from

2006 to 2016, used the threshold model to analyze the

effect of education funding investment on regional

technological innovation. The results show that: there

is a threshold effect of education funding investment

on regional technological innovation in each region

of China; at different levels of economic

development, education funding investment has a U-

shaped relationship with regional technological

innovation (Ge, 2018).

Educational inputs are indispensable for

knowledge accumulation, which in turn recommends

technological innovation, thereby improving firm

innovation outcomes and productivity, i.e.,

educational inputs generate spillovers through

technological innovation implicitly and

evolutionarily, which in turn promotes economic

growth. Therefore, we propose hypothesis 3.

H3: Educational inputs contribute to economic

growth by increasing scientific and technological

output.

3 MODEL CONSTRUCTION AND

EMPIRICAL ANALYSIS

3.1 Model Construction

The transmission mechanism of educational inputs to

economic growth is tested by using human capital

and science and technology output as mediating

variables to test the mechanism and to test whether

educational investments ultimately act on economic

growth level by increasing the level of human capital

and increasing science and technology output. The

mediating effect model is as follows:

𝐿𝑛GDP = C+𝛾



𝐿𝑛E



+𝛾



𝐿𝑛Med



+𝜔





𝑥



+𝜇(1)

where C is the constants and 𝜇 is a random

variable.Med



is the mediating variable, when k = 1,

its human capital; when k = 2, its university science

and technology production;

∑

𝜔



𝑥



are the

respective control variables.

3.2 Description of Variables

(1) By using GDP as an indicator of economic

growth, therefore, GDP is chosen as the explanatory

variable in this paper and the logarithm of GDP is

taken.

(2) Explanatory variables. The key explanatory

variable in this paper is education input (E_invest),

China's education mainly relies on government input,

and the government's financial investment in

education is the main force of education input, so the

logarithm of China's financial education expenditure

is used to represent education input.

(3) Mediating variables. The first, human capital

( H_cap). Human capital is expressed as the average

number of years of education of employed persons.

The measurement uses the calculation method of

Wang Xiyuan and Liang Qiaoling, the average years

of education = 17 × the share of employees with a

college education and above + 13.5 × the share of

employment with high school education + 10.5 ×

the share of employment with junior high school

education + 7.5 × the share of employment with

primary school education + 1.5 × the share of

employment with illiteracy or semi-literacy (Wang

2021, Liang 2021). Second, technological output

(T_out). The number of patent applications is an

important manifestation of independent innovation

capability, and this paper uses the number of patent

applications received as a proxy variable for

independent innovation.

(4) Control variables. To control the impact of

other time-varying factors on total factor

productivity, the investment rate (F-invest) is

expressed as the logarithm of the fixed capital

investment of the whole society, and foreign

investment (FDI) is expressed as the logarithm of the

actual amount of foreign capital utilized multiplied by

the average exchange rate of the year, according to

the existing theory and empirical experience.

BDEDM 2022 - The International Conference on Big Data Economy and Digital Management

288

4 EMPIRICAL RESULTS

4.1 Description of the Sample and Data

This paper conducts an empirical study using data

from China for 19 years from 2001-2019. The data

are obtained from the China Statistical Yearbook for

all years. The descriptive statistics of each variable

are shown in Table 1.

Table 1: Descriptive statistics for each variable.

Va ri a bl e

Name

instructions Sample

size

average

value

variance

(statistics)

max min

LN GDP economic growth 19 12.82 0.49 13.80 11.62

LN E-invest Financial

expenditure on

public education

19 9.46 0.75 10.60 8.03

LN H-cap human capital 19 11.23 0.21 11.24 11.20

LN T-out Scientific and

technical outputs

19 13.88 0.97 15.29 12.22

LN FDI foreign

investmen

19 13.37 0.07 13.77 12.87

LN F-invest Fixed asset

investmen

19 12.27 0.91 13.38 10.52

4.2 Empirical Results

Investment in education drives economic growth by

increasing the level of human capital as well as the

output of technological innovation. The following are

the results of a mechanical test based on mediating

transmission effects.

(1) Mediating effects of scientific and

technological outputs

The results of the empirical analysis show that the

regression coefficient of educational inputs on

economic growth is positive and passes the 5% level

of a significance test and that investment in education

has significant utility in increasing science and

technology output. Educational inputs promote

scientific and technological output, which in turn

affects economic growth.

From the results of the intermediary effect test, it

is clear that the increase in educational input

promotes economic growth, to a certain extent,

through the intermediary mechanism of increasing

scientific and technological output; in other words,

educational input increases the transformation of

scientific and technological achievements, which

allows economic growth to gain the necessary growth

drivers, which in turn promotes economic

development.

Table 1: Mediating effects of science and technology

outputs.

B p

C -0.836 0.581

LN E-invest 0.424 *** 0.009

LN T-out 0.356 *** 0.010

LN F-invest 0.042 0.637

LN FDI 0.181 *** 0.005

F=2655.67 R=0.99 R

=0.99

Note: *, **, *** indicate that each variable is significant at the

10%, 5%, and 1% levels, respectively

(2) Mediating effects of human capital output

The estimated coefficient of the effect of

education expenditure on economic growth is

positive and passes the 5% significant level test,

indicating that increased investment in education can

promote economic growth. The estimated coefficient

of the impact of educational inputs on human capital

is positive and passes the 5% significant level test,

and the empirical results indicate that the estimated

coefficient of human capital inputs affecting

economic growth is positive and passes the test,

indicating that educational inputs affect economic

growth through human capital, indicating a

significant mediating effect.

Table 2: Mediating effects of human capital output.

C 38.192 * 0.087

LN E-inves

0.515 *** 0.004

LN F-inves

0.322 ** 0.049

LN FDI 0.232 *** 0.001

LN H-ca

0.074 ** 0.047

F=2071.67 R=0.99 R

=0.99

Note: *, **, *** indicate that each variable is significant at the

10%, 5%, and 1% levels, respectively

From the results of the intermediary effect test, it

is clear that increased investment in education

promotes economic growth, to a certain extent,

through the intermediary mechanism of raising the

level of human capital, in other words, investment in

Analysis of Educational Investment Spillovers and Their Mechanisms: Based on a Log-linear Model

289

education raises the level of human capital, which

allows economic growth to obtain the necessary

supply of human capital and thus increases the level

of economic growth.

5 CONCLUSIONS AND

RECOMMENDATIONS

The relationship between educational input and

economic growth has been the focus of research.

Based on China's actual development experience, this

paper puts forward three hypotheses and analyzes the

spillover mechanism of educational input driving

economic growth by constructing a mediating effect

model. The following conclusions are obtained

through empirical research.

(1) Education inputs have a mediating effect

through science and technology output. From the

results of the intermediary effect test, it can be seen

that the increase in education input promotes

economic growth, to a certain extent, through the

intermediary mechanism of increasing scientific and

technological output, in other words, education input

increases the transformation of scientific and

technological achievements, which makes economic

growth obtain the necessary growth driver and thus

promotes economic development.

(2) Educational inputs contribute to economic

growth through the intermediary transmission

mechanism of human capital, which in turn affects

production efficiency. The increase in educational

investment promotes economic growth, to some

extent, through the mediating mechanism of raising

the level of human capital; in other words,

educational investment raises the level of human

capital, which makes it possible to obtain the

necessary supply of human capital for economic

growth and thus raise the level of economic growth.

Based on the above research findings, this paper

puts forward relevant policy recommendations from

two aspects. On the one hand, increase investment in

education, improve infrastructure construction, and

give play to the intermediary role of education in

human capital formation and technological

innovation to further promote economic

development. On the other hand, promote educational

equity. Investment in education is not only about

investment in hardware and equity but also about

investment in "software", especially the allocation of

teachers. Educational resources should be tilted

towards remote places to further promote equity in

education across the country, thereby effectively

raising the average productivity of society as a whole

and promoting economic growth.

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