Educational Attainment and Resource Use: Mystery or Econometric Misspecification?

Abstract

Many earlier studies have reported finding on significantly positive relationship between educational attainment and expenditure per pupil. Surveys by Hanushek and others have interpreted these findings as evidence of inefficiency in the educational production process. In this paper, we put forward an altenative explanation for these findings. This is that the observed levels of educational attainment and expenditure per pupil are themselves endogenously determined by optimizing behaviour on the part of schools, taking into account both supply-and demand-side considerations. This in turn can generate patterns of expenditure per pupil in line with empirical findings. Numerous econometric misspecification problems arise in this context from pursuing the type of single-equation estimation procedure adopted in many of the previous studies that biases in the estimated relationship between resourcing and educational attainment mean that little faith can be placed in their negative results.