Institutional quality and education spending efficiency: Evidence from developing economies

Abstract

This study examines the influence of institutional quality on the efficiency of public education expenditures in developing regions, specifically Sub-Saharan Africa (SSA) and the Middle East and North Africa (MENA), during 2010–2023. Effective allocation of educational resources is essential in contexts with limited fiscal capacity, where inefficiencies can exacerbate inequality and hinder human capital development. We analyze the impact of government effectiveness, corruption control, and accountability, along with their composite index constructed using principal component analysis (PCA), on educational outcomes. Utilizing data from the World Bank, WGI, and ILO, efficiency is assessed through Data Envelopment Analysis, and determinants are analyzed using Generalized Estimating Equations (GEE) and instrumental variable fixed-effects models (IV_FE) to address potential endogeneity. The results indicate that higher institutional quality is significantly associated with increased efficiency in educational spending. The composite governance index confirms robust effects, while disaggregated analyses reveal that government effectiveness and corruption control are particularly influential in SSA, whereas accountability plays a marginal role in the MENA region. These findings underscore the critical need for targeted institutional reforms to optimize educational investments and achieve effective policy outcomes in resource-constrained developing economies.