The effect of education on economic growth and unemployment rate – a comparative analysis between Kosovo and Germany

Purpose This study aims to examine the effect of educational investment on economic growth and unemployment in Kosovo and Germany, two countries with contrasting education systems and economic structures. Design/methodology/approach Using quarterly time-series data from 2010-Q1 to 2023-Q4, the study employs the Johansen cointegration approach, the autoregressive distributed lag (ARDL) bounds testing framework and the vector error correction model (VECM) to examine both long-run and short-run dynamics. In addition, Granger causality tests are conducted to determine the direction of predictive relationships among education, gross domestic product (GDP) growth and unemployment rate. Findings The results confirm long-run cointegration among the variables in both countries. For Kosovo, the findings reveal a paradoxical long-run relationship in which increases in both educational investment and GDP are associated with rising unemployment, pointing to structural mismatches between education outputs and labor market needs. For Germany, educational investment exhibits a significant long-run positive effect on both GDP and unemployment, suggesting that while education spending contributes to economic activity, it does not necessarily reduce unemployment in a mature labor market. Granger causality results show that in Germany, educational investment Granger-causes GDP, while no causal relationship is detected between education and unemployment; in Kosovo, GDP Granger-causes unemployment. Research limitations/implications The findings highlight the need for developing economies to align educational policies with labor market demands. For advanced economies, maintaining institutional alignment remains critical for sustaining low unemployment. This study is limited to two countries and macro-level data, which may mask individual or sector-specific dynamics. Future research could benefit from panel data, cross-country comparisons and qualitative assessments to capture micro-level variations and causality mechanisms. Originality/value By providing a comparative macroeconomic analysis across two economies at different developmental stages, this study highlights the contextual nature of education’s effects on growth and labor markets and offers policy-relevant insights for designing more effective education-employment strategies.