Analysis of Educational Investment Spillovers and Their
Mechanisms: Based on a Log-linear Model
Dan Hu
1,†
and Jing Liang
2,*
1
Hu Bei Business College, Wuhan, China
2
Chongqing Vocational College of Transportation, Chongqing, China
*
Corresponding author
Keywords: Investment In Education, Spillovers, Transmission Mechanism, Log-Linear Model.
Abstract: Education investment is a key factor driving China's economic growth and an important driver of economic
transformation and upgrading. Based on this, this paper puts forward three hypotheses on the mechanism of
education input promoting economic growth, using China's 2001-2019 statistics, a log-linear model, and SPSS
data processing software to analyze the intrinsic mechanism of China's education input promoting economic
growth. The results show that (1) the increase in educational input promotes economic growth, to a certain
extent, through the intermediary mechanism of increasing scientific and technological output, and educational
input improves the transformation of scientific and technological achievements, which makes economic
growth gain the necessary growth driver, and then promotes economic development. (2) Educational inputs
promote economic growth through the mediating transmission mechanism of human capital, which in turn
affects production efficiency. Education investment raises the level of human capital, which makes economic
growth obtain the necessary human capital supply and thus improve the level of economic growth.
Recommendations are also made in terms of both educational investment and educational equity.
1 INTRODUCTION
The relationship between investment in education
and economic growth has been a classical issue
studied by scholars (Du, 2020, Zhao, 2020).
Neoclassical economic growth theory says that
economic growth is attributed to three major factors:
capital accumulation, labor input, and technological
progress, while investment in education has an
important role in promoting technological progress
and human capital accumulation. In other words,
investment in education can both directly promote
economic growth and indirectly promote economic
growth through the existence of intermediary factors,
which means that there is a spillover effect of
investment in education.
China, as a late-developing catch-up economy,
has been developing for decades, creating a miracle
of world economic development and attracting high
attention globally. China's education spending has
grown year after year, surpassing 5 trillion yuan in
2019, accounting for 5 percent of the country's GDP.
What role does China's education investment play in
the process of economic growth? And what is the
transmission mechanism of the spillover effect of
education investment? This paper will focus on the
above two questions for theoretical analysis and
empirical research.
2 ANALYSIS OF THE
TRANSMISSION MECHANISM
OF INVESTMENT IN
EDUCATION FOR ECONOMIC
DEVELOPMENT
Tang Lizhi and Li Yujia construct a three-period
intergenerational overlap model along with the
formation mechanism of endogenous skill premiums,
in which "educational inputs form human capital and
human capital is transferred between generations",
and find that the effect of educational inputs on skill
premiums differs under different human capital
levels. Under China's dualistic human capital
structure, public education investment plays a role in
reducing the skill premium when the level of human
286
Hu, D. and Liang, J.
Analysis of Educational Investment Spillovers and Their Mechanisms: Based on a Log-linear Model.
DOI: 10.5220/0011174200003440
In Proceedings of the International Conference on Big Data Economy and Digital Management (BDEDM 2022), pages 286-290
ISBN: 978-989-758-593-7
Copyright
c
 2022 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

capital is low and high, but private education
investment expands the value of the skill premium
when the level of human capital is low (Tang, 2020,
Li, 2020). Wu Weiwei, on the other hand, used fixed
effects, spatial measures and threshold effects models
based on provincial panel data to identify differences
in financial inputs to higher education in regions with
different levels of growth. The results show that
although economic growth is conducive to promoting
higher education financial investment, regions with
higher levels of economic growth do not show a
stronger willingness to invest in higher education
compared to other regions; local higher education
financial investment is influenced by economic
proximity and there is a significant spatial
demonstration effect (Wu, 2021). Using panel data of
30 provinces in China from 2006-2015, Jiang
Yucheng and Jia Ting Yue examined the economic
effects of public education expenditure structure on
industrial labor productivity and identified the
channels of influence of various types of public
education expenditure from the perspective of human
capital accumulation (Jiang, 2020, Jia, 2020).
The above studies show that human capital is one
of the important factors driving economic growth.
Education is of great importance in promoting human
capital formation. On the one hand, educational
inputs promote the accumulation of knowledge,
technical proficiency and thus improve the
knowledge skills and technical skills of individuals.
The general increase in individual productivity
promotes the increase in productivity of the society
as a whole, which in turn promotes economic growth.
On the other hand, educational inputs contribute to
knowledge accumulation, which in turn influences
the creation of new knowledge and the birth of new
technologies, which in turn enhances the quality of
the country's human capital and promotes the
development of science and technology, which
further boosts economic growth, thus creating a
significant spillover effect on economic
development. Therefore, we propose hypothesis 1.
H1: Educational inputs contribute to economic
growth by raising the level of human capital.
Developing higher education is a positive move to
cope with population aging and drive industrial
structures upgrading. Using inter-provincial panel
data from 2009-2018, Wang Xiyuan and Liang
Qiaoling find that the increase in higher education
investment helps to attenuate the negative impact of
population aging on industrial structural upgrading
through empirical analysis. The promotion effect of
higher education investment on industrial structural
upgrading is mainly based on the mediating
mechanism of advanced human capital; while the
mediating mechanism based on science and
technology output is not significant, indicating that
the supply of science and technology output of
universities fails to match effectively with the
demand for science and technology for industrial
structural upgrading (Wang, 2021, Liang, 2021).
Educational input can accelerate the free flow and
optimal allocation of social resources among
industries, which is an important means to promote
the optimization and upgrading of industrial
structure. By constructing an index of industrial
structure rationalization and upgrading, Deng
Chuang and Fu Rong examined the changing pattern
and regional differences of China's industrial
structure from two dimensions of industrial structure
layout optimization and industrial structure
upgrading, and further empirically investigated the
non-linear influence mechanism of financial
education investment on the degree of industrial
structure rationalization and upgrading in China
based on a panel smoothing threshold regression
model. The study shows that the financial investment
in education in China can play a better role in
promoting the optimization and upgrading of
industrial structure, and the impact of financial
investment in education on the rationalization and
advanced degree of the industrial structure shows
significant threshold characteristics as the level of
education increases (Deng, 2017, Fu, 2017).
Matching human resources and industrial
transformation and upgrading is an important
influencing factor of industrial transformation and
upgrading. By constructing an index system for
evaluating the suitability of industrial structure
transition and human resources development, Fu Tao
used the suitability evaluation model to evaluate the
suitability of both transition and development in
China from 2000 to 2015, showing that the overall
matching degree between the two in China showed a
rising trend and asymmetric characteristics (Fu,
2016). Educational inputs have a spillover effect
through knowledge, i.e. they further promote the
innovative activities of enterprises through research
and development and creativity, which in turn
promote industrial upgrading and influence economic
development. The mechanism of industry-university-
research can be utilized to promote technological
innovation and knowledge transformation through
the integration of schools and enterprises, and thus
promote the optimization and upgrading of the
industrial structure by rationalizing the full and
effective use of resources. Therefore, hypothesis 2 is
proposed in this paper.
Analysis of Educational Investment Spillovers and Their Mechanisms: Based on a Log-linear Model
287

H2: Increased inputs to higher education increase
science and technology output, which in turn drives
industrial structural upgrading.
There is a mutually reinforcing relationship
between technological progress and economic
growth. Qianqian Sang and Yuxiang Li studied the
mechanism of the role of education investment in
promoting high-quality economic development
through panel data of 237 prefecture-level cities from
2006-2016 and found that education investment
improves total factor productivity and enhances
economic development dynamics by promoting
independent innovation and enhancing the ability to
digest and absorb foreign technology and innovation
(Sang, 2021, Li, 2021). Education is the foundation
of technological innovation, and education funding
investment is an important factor influencing regional
technological innovation. Ge Yao, on the other hand,
based on the panel data of 29 provinces in China from
2006 to 2016, used the threshold model to analyze the
effect of education funding investment on regional
technological innovation. The results show that: there
is a threshold effect of education funding investment
on regional technological innovation in each region
of China; at different levels of economic
development, education funding investment has a U-
shaped relationship with regional technological
innovation (Ge, 2018).
Educational inputs are indispensable for
knowledge accumulation, which in turn recommends
technological innovation, thereby improving firm
innovation outcomes and productivity, i.e.,
educational inputs generate spillovers through
technological innovation implicitly and
evolutionarily, which in turn promotes economic
growth. Therefore, we propose hypothesis 3.
H3: Educational inputs contribute to economic
growth by increasing scientific and technological
output.
3 MODEL CONSTRUCTION AND
EMPIRICAL ANALYSIS
3.1 Model Construction
The transmission mechanism of educational inputs to
economic growth is tested by using human capital
and science and technology output as mediating
variables to test the mechanism and to test whether
educational investments ultimately act on economic
growth level by increasing the level of human capital
and increasing science and technology output. The
mediating effect model is as follows:
𝐿𝑛GDP = C+𝛾

𝐿𝑛E

+𝛾

𝐿𝑛Med

+𝜔


𝑥

+𝜇(1)
where C is the constants and 𝜇 is a random
variable.Med

is the mediating variable, when k = 1,
its human capital; when k = 2, its university science
and technology production;
∑
𝜔

𝑥

are the
respective control variables.
3.2 Description of Variables
(1) By using GDP as an indicator of economic
growth, therefore, GDP is chosen as the explanatory
variable in this paper and the logarithm of GDP is
taken.
(2) Explanatory variables. The key explanatory
variable in this paper is education input (E_invest),
China's education mainly relies on government input,
and the government's financial investment in
education is the main force of education input, so the
logarithm of China's financial education expenditure
is used to represent education input.
(3) Mediating variables. The first, human capital
( H_cap). Human capital is expressed as the average
number of years of education of employed persons.
The measurement uses the calculation method of
Wang Xiyuan and Liang Qiaoling, the average years
of education = 17 × the share of employees with a
college education and above + 13.5 × the share of
employment with high school education + 10.5 ×
the share of employment with junior high school
education + 7.5 × the share of employment with
primary school education + 1.5 × the share of
employment with illiteracy or semi-literacy (Wang
2021, Liang 2021). Second, technological output
(T_out). The number of patent applications is an
important manifestation of independent innovation
capability, and this paper uses the number of patent
applications received as a proxy variable for
independent innovation.
(4) Control variables. To control the impact of
other time-varying factors on total factor
productivity, the investment rate (F-invest) is
expressed as the logarithm of the fixed capital
investment of the whole society, and foreign
investment (FDI) is expressed as the logarithm of the
actual amount of foreign capital utilized multiplied by
the average exchange rate of the year, according to
the existing theory and empirical experience.
BDEDM 2022 - The International Conference on Big Data Economy and Digital Management
288

4 EMPIRICAL RESULTS
4.1 Description of the Sample and Data
This paper conducts an empirical study using data
from China for 19 years from 2001-2019. The data
are obtained from the China Statistical Yearbook for
all years. The descriptive statistics of each variable
are shown in Table 1.
Table 1: Descriptive statistics for each variable.
Va ri a bl e
Name
instructions Sample
size
average
value
variance
(statistics)
max min
LN GDP economic growth 19 12.82 0.49 13.80 11.62
LN E-invest Financial
expenditure on
public education
19 9.46 0.75 10.60 8.03
LN H-cap human capital 19 11.23 0.21 11.24 11.20
LN T-out Scientific and
technical outputs
19 13.88 0.97 15.29 12.22
LN FDI foreign
investmen
t
19 13.37 0.07 13.77 12.87
LN F-invest Fixed asset
investmen
t
19 12.27 0.91 13.38 10.52
4.2 Empirical Results
Investment in education drives economic growth by
increasing the level of human capital as well as the
output of technological innovation. The following are
the results of a mechanical test based on mediating
transmission effects.
(1) Mediating effects of scientific and
technological outputs
The results of the empirical analysis show that the
regression coefficient of educational inputs on
economic growth is positive and passes the 5% level
of a significance test and that investment in education
has significant utility in increasing science and
technology output. Educational inputs promote
scientific and technological output, which in turn
affects economic growth.
From the results of the intermediary effect test, it
is clear that the increase in educational input
promotes economic growth, to a certain extent,
through the intermediary mechanism of increasing
scientific and technological output; in other words,
educational input increases the transformation of
scientific and technological achievements, which
allows economic growth to gain the necessary growth
drivers, which in turn promotes economic
development.
Table 1: Mediating effects of science and technology
outputs.
B p
C -0.836 0.581
LN E-invest 0.424 *** 0.009
LN T-out 0.356 *** 0.010
LN F-invest 0.042 0.637
LN FDI 0.181 *** 0.005
F=2655.67 R=0.99 R
2
=0.99
Note: *, **, *** indicate that each variable is significant at the
10%, 5%, and 1% levels, respectively
(2) Mediating effects of human capital output
The estimated coefficient of the effect of
education expenditure on economic growth is
positive and passes the 5% significant level test,
indicating that increased investment in education can
promote economic growth. The estimated coefficient
of the impact of educational inputs on human capital
is positive and passes the 5% significant level test,
and the empirical results indicate that the estimated
coefficient of human capital inputs affecting
economic growth is positive and passes the test,
indicating that educational inputs affect economic
growth through human capital, indicating a
significant mediating effect.
Table 2: Mediating effects of human capital output.
B
p
C 38.192 * 0.087
LN E-inves
t
0.515 *** 0.004
LN F-inves
t
0.322 ** 0.049
LN FDI 0.232 *** 0.001
LN H-ca
p
0.074 ** 0.047
F=2071.67 R=0.99 R
2
=0.99
Note: *, **, *** indicate that each variable is significant at the
10%, 5%, and 1% levels, respectively
From the results of the intermediary effect test, it
is clear that increased investment in education
promotes economic growth, to a certain extent,
through the intermediary mechanism of raising the
level of human capital, in other words, investment in
Analysis of Educational Investment Spillovers and Their Mechanisms: Based on a Log-linear Model
289

education raises the level of human capital, which
allows economic growth to obtain the necessary
supply of human capital and thus increases the level
of economic growth.
5 CONCLUSIONS AND
RECOMMENDATIONS
The relationship between educational input and
economic growth has been the focus of research.
Based on China's actual development experience, this
paper puts forward three hypotheses and analyzes the
spillover mechanism of educational input driving
economic growth by constructing a mediating effect
model. The following conclusions are obtained
through empirical research.
(1) Education inputs have a mediating effect
through science and technology output. From the
results of the intermediary effect test, it can be seen
that the increase in education input promotes
economic growth, to a certain extent, through the
intermediary mechanism of increasing scientific and
technological output, in other words, education input
increases the transformation of scientific and
technological achievements, which makes economic
growth obtain the necessary growth driver and thus
promotes economic development.
(2) Educational inputs contribute to economic
growth through the intermediary transmission
mechanism of human capital, which in turn affects
production efficiency. The increase in educational
investment promotes economic growth, to some
extent, through the mediating mechanism of raising
the level of human capital; in other words,
educational investment raises the level of human
capital, which makes it possible to obtain the
necessary supply of human capital for economic
growth and thus raise the level of economic growth.
Based on the above research findings, this paper
puts forward relevant policy recommendations from
two aspects. On the one hand, increase investment in
education, improve infrastructure construction, and
give play to the intermediary role of education in
human capital formation and technological
innovation to further promote economic
development. On the other hand, promote educational
equity. Investment in education is not only about
investment in hardware and equity but also about
investment in "software", especially the allocation of
teachers. Educational resources should be tilted
towards remote places to further promote equity in
education across the country, thereby effectively
raising the average productivity of society as a whole
and promoting economic growth.
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