Does education cause economic growth in Iran?

This paper examines causal relationships between education and economic growth for Iran using annual data over the period 1970–2010. The Gregory-Hansen (1996) cointegration technique, allowing for the presence of potential structural breaks in data, is applied to empirically examine the long-run co-movement between these variables. The results suggest that there is no long-run relationship between these variables. The Granger Causality test indicates strong unidirectional effects from GDP to education. But there is no evidence that education contribute to economic growth. Moreover, the main results in this paper confirm that there is an instantaneous as well as unidirectional causal link running from GDP to education. The lack of strong link from education to economic growth is not necessarily a reason to reallocate education investment away from the education sector. The vital problem is to make education system and spending more effective in improving education outcomes.