Government Expenditures on Higher Education and Innovativeness: Does Quantity or Quality Matter?

Introduction

Contemporary economic trends show that economies of higher competitiveness are more prepared to cope with the crisis. As the competitiveness and strength of the economy to cope with current problems and challenges is based on the ability of its companies to export and generate profits, in order to improve their competitive position, key factors contributing to this need to be considered. The transformation that has marked the last decades has noted the beginning of the knowledge era, which is why it is considered that those who are learning become more competent, productive in all stages of the economic and social development cycle (Zjalić, 2009). Innovation, which represents the ability to produce and commercialize products and services using new knowledge and skills (Furman, Porter & Stern, 2002), is also an important factor in the competitiveness of an economy. Thus, at the heart of economic growth and the development of a competitive economy are investments in human capital (Barro, 2001; Duerrenberger& Warning, 2018), with the need to concentrate efforts to enhance innovation (Sener&Sarıdogan, 2011; Hasan & Tucci, 2010), since, in the long run, living standards can only be improved by innovation (Romer, 1990).

In line with strengthening the capacity for innovation, the importance of the general level of education in tracing the path of economic development of a nation is emphasized (Oketch, 2016). The numerous economic and social benefits are able to gain through education, both for the individual and for society, and it is therefore very important for every country to have a developed and quality education system. For example, the benefits of different educational programs, as important determinants of human capital, can be viewed through the lens of creating competent civil servants to effectively manage public affairs, individuals who become capable of managing businesses and their own business ventures, but also experts in law and banking. Other benefits relate to attracting foreign direct investment, R&D, acquisition and application of knowledge, which keep pace with current trends, especially in technology (Oketch, 2016). As a consequence of the recognized role and importance of higher education, the government intervenes in the education market, ensuring the allocation of public funds to its education systems (Hanushek, 1986; Trostel, 2002; Duerrenberger& Warning, 2018).

Higher education funding around the world has undergone radical changes in the last decades of the 20th and the first decade of the 21st century (Eriņš&Kārkliņa, 2011), therefore, when considering the higher education financing model, existing challenges and trends in the field of education should be kept in mind (Dolenec, 2006; Muchie, 2009; Menon, 2012), which have an undoubted impact on government spending in this area.Approaches to problem solving in different countries are often divergent, although the set of factors affecting this area is largely unique. Given the current trend of globalization (Beerkens, 2004), these factors have similar effects worldwide, with the aspiration of each country to retain its own characteristics.In recent years, the economic, political and social ties and consequences of higher education funding have had a major impact on the current practice of limited government spending on higher education and the attempt to incorporate student co-financing (through tuition and credit) to increase the availability of higher education (Eriņš&Kārkliņa, 2011). According to Barr, the goal is to offer every “clever and clear” individual a place and an opportunity to attend higher education programs in order to maximize their potential (Barr, 2004).