DOES EDUCATION PROMOTE ECONOMIC GROWTH IN LAO PDR? EVIDENCE FROM COINTEGRATION AND GRANGER CAUSALITY APPROACHES.

New growth theory argues that education and human resources is the key variables to promote economic growth. There are several empirical studies on causality between economic growth and education in developed and developing countries. These studies used several approaches to investigate the relationship between two variables. However, the empirical result between growth and education are mixed. Most of finding shows that the education stimulates economic growth. However, some empirical study find that the relation between education and economic growth is weak. Some scholars also argue that there is no causality running from education to economic growth. Despite increasing school enrollment, the percentage of enrollment is still low compared to neighboring countries in Laos. Further, the quality of education is relatively low. Therefore, the relation between education and growth in Laos is a relevant topic for several reasons. Moreover, there is no study related with issue. We investigate the relation between education and economic growth in Laos for the period from 1984 to 2013. For this investigation, we apply the Johansen cointegation and Granger causality approaches. In our study, we choose three indicators of education: primary school enrollment (PRI), secondary school enrollment (SEC), and higher education enrollment (HE) to investigate the their relationship on economic growth. The Johansen cointegration test confirms the existence of a long-term relation between education and economic growth at all levels. The Granger approach indicates the existence of feedback causality between education and economic growth at all levels. Thus, this study recommends more investment in education in order to foster economic growth. In sum, the promotion of education (at all levels) stimulates economic growth, at the same time economic growth also supports education development in Laos. This empirical result is consistent with many studies. For instance, Qazi et al (2014) for Pakistan. In contract, the finding of this study is contradiction with some studies. For instance, Self and Grabowski (2004) for India, Benhabib and Spiegel (1994) for Greece. Lao education is still low in all level. As result, the promotion education development could improve the labor productivity in economic sector. As the quality of education is low in Laos, and it face various challenges. One of the most challenges in education development is lack of funding, facilities and qualified teachers and lecturers. Therefore, policy makers should invest more education at all levels to improve education quality in order to promote the long-term economic development. [ABSTRACT FROM AUTHOR]