Abstract. The study investigates dynamics of expenditure on education and economic growth in selected 14 major Asian countries by using balanced panel data from 1973 to 2012. The results of Pedroni cointegration state the existence of long-run equilibrium relationships between expenditure on education and economic growth in all the countries. The FMOLS results revealed a positive and statistical significant impact of education expenditure on economic development of all the 14 Asian countries (Bangladesh, China, Hong Kong, India, Japan, Nepal, Pakistan, Malaysia, The Philippines, Saudi Arabia, Singapore, Sri Lanka, Thailand, and Turkey). Further, the panel vector error correction (PVECM) presents unidirectional Granger causality running from economic growth to expenditure on education both in the short- as well as in the long-run. But, expenditure on education only Granger causes economic growth in long-run in all the countries. As a group, the FMOLS shows a positive impact of educational expenditure on economic growth. The study argues that education sector is one of the important ingredients of economic growth in all 14 Major Asian countries. Education sector should be given priority, and a handsome share of total expenditure of the governments should be made on education sector by enhancing various elementary, higher and technical educations in the respective nations to have the skilled man power for the long-term economic development.

Keywords: Expenditure on education, economic growth, FMOLS, panel VECM, causality.