**Table 7 Different distributions for the inefficiency parameter** (λ)

|Variable|Obs|Mean|Std.Dev.|Min|Max|Coef.<br>Variation|
|---|---|---|---|---|---|---|
|Half‐Normal|130|0.872|0.131|0.449|0.981|0.150|
|Truncated‐Normal|130|0.835|0.142|0.420|0.992|0.170|
|Exponential|130|0.876|0.125|0.443|0.976|0.143|

# **5. Conclusion and Discussion**

The purpose of this paper is to assess the efficiency of public education expenditure to deliver good quality education, in the light of the learning‐adjusted years of schooling (LAYS). A stochastic frontier model is applied to data from 130 countries including 96 developing countries and 34 high‐income countries. Overall, the results show a positive and significant relationship between expenditure per school‐age individual and the LAYS, when countries’ contextual factors (including inefficiencies in use of public financial resources dedicated to the education sector) are controlled for. This relationship seems to hold after controlling for potential endogeneity issues.

The average efficiency is about 87 % overall and 84 % in developing countries. This illustrates that approximately 16 % of public resources (including education aid) dedicated to education in developing countries are wasted because of some inefficiencies in these countries. The efficiency level seems to be particularly low in low‐income countries (74%). Countries with the lowest spending levels seem to register the lowest LAYS and the lowest efficiency levels. This means that most developing countries are facing a double issue related to the “quantity” and the “quality” of public expenditure on education. Improving access to quality education requires these two issues to be solved simultaneously.<sup>13</sup> In other terms, education expenditure needs to improve along with the efficiency in the use of public resources dedicated to the education sector in order to drive better educational outcomes.

Even though efficiency factors could vary by country, there are two main correlates for the efficiency of public education expenditure: Governance‐related factors and countries’ labor market conditions. On the one hand, better institutional capacity and especially better quality of policies for social inclusion and equity seem to be correlated with higher efficiency of public education expenditure. On the other hand, low unemployment rates are also associated with higher efficiency. This latter result is particularly interesting in the sense that this could imply that the labor market’s signals for increased labor demand seem to be correlated with higher incentive to efficiently use the available resources to deliver better access to good quality education. In other terms, the coordination between the labor market and the education system seems to matter for the efficiency of public expenditure on education. The composition

> 13 Al‐Samarrai, Cerdan‐Infantes, & Lehe (2019) conclude that countries with fiscal flexibility, low spending, and poor outcomes are the best candidates for increasing education funding, especially if they start from a very inefficient point. The current paper rather suggests that improving spending in an inefficient context will not necessarily bear the expected results unless the sources of the inefficiencies are addressed. Countries with lower spending offer a greater opportunity for increased educational outcomes through improved expenditure on education, but this requires inefficiency drivers to be identified and addressed.

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