Education Spending and State Economic Growth: Are All Dollars Created Equal?

This article contributes to the literature on the effect of state and local education spending on U.S. state economic growth by separately analyzing higher and K-12 education spending and by taking into account the possibility that education spending may generate spillover effects to neighboring states. Results from a series of fixed-effects regressions using a 1992-2002 panel of state-level data indicate that increased spending on higher education generally exhibits a relatively large negative effect on private sector employment or gross state product growth when the increase in education spending is financed through own-source revenue. Results do not identify a statistically significant relationship between K-12 education spending and economic growth. This finding is an important clarification in the literature because an analysis of combined higher and K-12 education spending yields an overall negative effect. Results do not provide consistent evidence of cross-state spillover effects associated with either form of education spending.