Do educational expenditures matter? Application of a smooth transition regression model

One of the essential preconditions for economic development across various sectors is education, which plays a significant role in fostering economic growth. This article examines the impact of educational expenditures on the effectiveness of factors influencing industrial value added in Iran from 1984 to 2019, utilizing the nonlinear Smooth Transition Regression (STR) model. The findings reveal that this relationship is statistically significant at both high and low values of the transition variable. In this study, government investment in education is treated as a transition variable and an alternative to educational expenditures. The results indicate a threshold of 7.44 % and a slope of 1.3. In the first regime, both the exchange rate and workforce negatively affect industrial value added. Conversely, in the second regime, the exchange rate and workforce have a positive impact on added value. Notably, physical capital exerts a linear and constant effect on added value in both regimes, while educational expenditures significantly enhance added value only in the second regime.