The Impact of Investment in Education with Mediating Role of Financial Development: Evidence from Pakistan

Abstract

Investment in education is just as essential as the overall plan to develop the nation's economy. It can improve people's human capital assets, reform society, and promote economic growth for greater welfare. This study explores the complex relationship between education investment, foreign direct investment (FDI), financial development, and economic growth in the context of Pakistan. The present research makes use of time series date from 1993 to 2022 which has been further quarterly divide, examine how financial development can influence the relationship between investment in education and economic growth. Examining the impact of investment in education on economic growth, the study acknowledges the positive correlation supported by extensive research. However, while prior literature often indicates a positive link between FDI and economic expansion, empirical findings in Pakistan suggest a complex, significant relationship. Crucially, the study highlights financial development as a significant mediator between education, FDI, and economic growth, emphasizing the role of a robust financial system in amplifying the impact of these investments on economic growth. Recommendations include prioritizing evidence-based reforms, focusing on early childhood development, promoting vocational training, and leveraging technology for sustainable educational investments. This study contributes in generating valuable insights that can be applied to other developing economies facing similar challenges. Furthermore, it looks at each of the individual contributions of investment in education and FDI to economic growth in Pakistan and provides evidence-based policy interventions that foster inclusive and sustainable economic growth by leveraging the interconnectedness of these crucial factors.