A Mediation Analysis on Level of Education and Economic Growth

This paper examines the relationship between education and economic growth in Malaysia from 1984 to 2012 which is motivated by the issue of the inefficiency of government's expenditure on education. Specifically, this paper investigates how education levels affect Malaysia's economic growth directly and indirectly through mediators such as unemployment, fertility and technology innovation via mediation analysis. The empirical results show that primary and tertiary education affects economic growth positively, while secondary education gives a negative effect. It is also discovered that the impact of all education levels on economic growth via indirect effects is higher than the direct effects. Tertiary education has the largest total effect among the other education levels on economic growth and its indirect effect on economic growth through lowering unemployment and fertility and increasing technology innovation is found to be significant.