**Table 7:  Median Elasticities by Initial Spending and Efficiency Levels** _<u>Country episodes with spending increases</u>_

||**Low-Spending**|**High-Spending**|**Total**|
|---|---|---|---|
|_Learning-adjusted yea_|_rs of schooling_|||
|High-efficiency|0.01|0.04|**0.02**|
|Low-efficiency|0.19|0.14|**0.15**|
|Total|**0.10**|**0.07**|**0.08**|
|_Learning_||||
|High-efficiency|0.01|-0.001|**0.0001**|
|Low-efficiency|0.05|0.04|**0.05**|
|Total|**0.04**|**0.001**|**0.02**|
|_Expected years of sch_|_ooling_|||
|High-efficiency|0.02|0.04|**0.03**|
|Low-efficiency|0.07|0.09|**0.08**|
|Total|**0.04**|**0.05**|**0.04**|

_Source:_ World Bank calculations based on HCI, UIS, and IMF data.

The elasticities of learning outcomes and expected years of schooling also vary by category but follow similar trends. Low-efficiency countries have higher elasticities on both indicators, with elasticities declining as countries approach the frontier. For high-efficiency countries, the elasticities of both indicators are small, indicating that, in those countries, spending more resources on education has led to minimal improvement in outcomes. The differences in elasticities based on high or low spending are less pronounced for these two indicators than they are for LAYS.

This analysis suggests that while countries are on average not very effective in transforming resources into outcomes, they are more effective if they start from a low-spending and low-efficiency point. The average elasticity for LAYS is only 0.08, but for low-spending, low-efficiency countries, the average elasticity is 0.19 (Table 7). For those countries, increases in spending have historically resulted in significant improvements in outcomes. For example, with a median LAYS of 6.3 years and a median elasticity of 0.19, these low-spending, low-efficiency countries would need to increase spending by 159 percent to achieve the upper-middle-income country median of 8.2 years–a large but achievable spending increase. On the other hand, the median low-income or lower-middle-income country, which also has a median LAYS of 6.3 years but an elasticity of 0.10, would have to increase spending by more than 300 percent to achieve the same level of outcomes. Similarly, high-spending, high-efficiency countries have experienced small improvements, or in some cases even declines in outcomes, following increases in spending.

The results of this analysis could have important implications for policy. First, they imply that boosting public education spending in countries with low spending and poor outcomes is likely to yield significant improvements in outcomes, even if the country is inefficient. This would imply that such countries that have the fiscal space to increase their public education spending should do so as their outcomes are likely to improve. Second, as countries get closer to the efficiency frontier, it becomes increasingly difficult to transform resources into outcomes and thus these countries will tend to follow a flatter path in Figure 10. While this does not mean that such countries should not spend more on education, it does signal the need for policy makers to make greater efforts to increase efficiency if they want to improve outcomes significantly. Even if these countries have the ability to increase spending, any growth in resources should be accompanied by explicit efforts to increase the efficiency of education spending. Based on countries’ previous experiences, these efforts are only likely to be effective if they fundamentally change the way that 32