The Effect of Public Education Expenditures and Macroeconomic Instability on Human Capital in Iran

Abstract

The purpose of this paper is to investigate the effect of public education expenditures and macroeconomic instability on human capital in Iran in period 1971-2019. For this, macroeconomic instability was first extracted using the Markov Switching-Garch (MS-GARCH) model. Then, using Nonlinear AutoRegressive Distributed Lag (NARDL) model, we saw that there is a positive and significant relationship between public education expenditure and human capital in the long-run and short-run. Also, the results of estimating the long-run coefficients of positive and negative changes in macroeconomic instability on human capital showed that both coefficients are asymmetric, negative and significant in the long run. In the short run, there is a significant relationship between positive changes in macroeconomic instability and human capital, but there is no significant relationship between negative changes in macroeconomic instability and human capital.

Keywords

• public education expenditures
• macroeconomic instability
• human capital
• markov switching-garch model
• nonlinear autoregressive distributed lag model