Allocation of Public Education Spending in Latin America and the Caribbean Explaining Differences in Efficiency

Abstract: Countries in Latin America and the Caribbean (LAC) have lagged behind in educational outcomes despite having on par levels of education spending given their level of development. This suggests that LAC suffers from poor efficiency of education spending which could be due to the high level of public investment in tertiary education. Hence this study looks at the relationship between efficiency and allocation of public education spending in LAC between 1970-2019 using quantitative methods. In a two-stage analysis, first country-efficiency scores are calculated for LAC countries using Data Envelopment Analysis. In the second stage, a fixed effects model is used to find how the share of tertiary education spending and the share of secondary education spending affect efficiency. The study finds that, on average, increasing tertiary education spending has increased efficiency of education spending but for high income inequality countries a higher share of tertiary education spending has been associated with inefficiency. The study also finds that in LAC increasing tertiary education spending has not come at the expense of decreasing spending at primary and secondary level. Furthermore, the study does not find evidence to support the claim that LAC countries would have moved to invest prematurely in tertiary education. Nevertheless, while increasing tertiary education spending has not had a negative impact on efficiency, increasing spending at secondary level has had a significantly larger positive effect on efficiency and thus LAC countries are likely to benefit from investing more at secondary level than at tertiary level.