A COMPLEX RELATION BETWEEN EDUCATION AND GROWTH: INSTITUTIONAL CONTEXT

Abstract

Aiming to reshape the economic growth trajectories through the improvement of human capital, countries of Southeast Europe significantly increased the number of students during the study period from 2005-2021 through liberalization of higher education sector. However, despite the increased number of students, the latest PISA findings show that the region’s educational capacities are inadequate. Which, coupled with a low average level of institutional quality, affects economic growth. By utilizing the Two Step GMM robust model, the study shows that tertiary education enrollment, government expenditures, and institutional quality, significantly and positively impact GDP. In contrast, the trade openness has a negative impact. Ultimately, the study confirms that the effects of education in economic performance are moderated by the quality of institutions, which resulted statistically significant and with positive impact on GDP. Thus, strengthening the scholarly corpus and better management of the institutions cause an increase in the level of education and productivity by better responding to labor market dynamics and promoting sustainable economic trajectories.