Strategic spending, not budget size, drives graduation outcomes in universities

Lithuania’s higher education system is facing a paradox: even as public funding grows, graduation rates at its universities continue to decline. A newly published peer-reviewed study titled “From Policy to Outcome: How Economic Conditions and National Funding Affect Graduation Rates: Case of Lithuanian Universities” in Economies (2025), reveals that the effectiveness of higher education funding in Lithuania is more dependent on how resources are allocated than on the volume of spending alone.

Covering ten public universities over the 2013–2022 period, the research provides a rigorous statistical analysis of macroeconomic factors, funding structures, and time-lag effects on graduation outcomes.

How do economic conditions influence university completion rates?

The study demonstrates that macroeconomic indicators, particularly GDP per capita and unemployment rates, exert measurable effects on graduation outcomes, though not always in straightforward ways. A higher GDP per capita, often associated with improved living standards and a booming job market, showed a statistically significant negative correlation with graduation rates. The researchers interpret this as an opportunity cost dynamic: as economic alternatives become more attractive, students may delay or abandon their studies in favor of entering the workforce.

In contrast, the unemployment rate only became a significant predictor when examined with a three-year lag. This suggests that adverse labor market conditions may push individuals toward further education as a long-term strategic response. However, the inflation rate, another macroeconomic factor included in the models, did not show any significant impact across all time lags. The authors suggest this is likely because Lithuanian public universities are largely insulated from short-term price shifts due to government funding mechanisms.

These findings support the hypothesis that macroeconomic variables have time-lagged effects on higher education outcomes. The study reinforces the idea that institutional responses and student decisions often unfold over multiple academic cycles rather than in reaction to short-term economic shifts.

Does more public money improve graduation rates?

The findings challenge a prevailing assumption in education policy: that more money leads to better outcomes. When total public funding as a share of GDP was analyzed, its effect on graduation rates was consistently negative across models spanning the current year to a two-year lag. According to the authors, this outcome may reflect a misalignment between funding priorities and institutional needs. Increased funding, without targeted deployment, may fail to support the infrastructure or academic services that most influence student success.

Even funding earmarked for direct study activities showed a negative effect, although only in the model for the current year. This might indicate inefficiencies in the use of funds or that the benefits of such expenditures manifest outside the narrow window of the observed graduation cycles. The study warns that without strategic planning and institutional accountability, education budgets may generate only marginal improvements or even unintended setbacks in academic performance.

Conversely, public investment in research and infrastructure consistently showed positive and statistically significant effects on graduation outcomes across all lagged models. Research funding enhances faculty quality and academic engagement, which in turn improves student experience and motivation. Infrastructure investment, such as modern facilities and digital tools, was especially influential in the three-year lag model, reinforcing the idea that physical learning environments yield long-term benefits for educational persistence.

Why Does Timing Matter in Evaluating Education Policy?

A central contribution of the study is its methodological focus on time-lag effects. The researchers employed four regression models incorporating lags of up to three years, aligned with the typical duration of bachelor’s and master’s programs in Lithuania. This approach allowed them to isolate delayed impacts of economic and financial variables on graduation rates—insights often missed by conventional, single-year analyses.

The most compelling time-lag effects were observed in the variables for unemployment and infrastructure funding. For example, a spike in unemployment three years prior had a clear positive impact on current graduation rates, as students opted to enter or remain in higher education during uncertain job market conditions. Similarly, infrastructure investments yielded their strongest effects with a multi-year delay, underscoring the long gestation period of physical upgrades and their eventual influence on learning outcomes.

These lagged effects suggest that education systems do not respond instantaneously to external shocks or policy reforms. Instead, they evolve incrementally, with institutional changes and student behavior adjusting over time. The study cautions policymakers against evaluating the success of educational reforms based on immediate results, advocating instead for longitudinal metrics that capture full policy trajectories.

Policy recommendations and broader implications

Based on its empirical findings, the study offers several policy recommendations. First, governments should recalibrate funding models to prioritize long-term investments in research and infrastructure, which have demonstrated consistent positive effects on graduation rates. Second, funding for direct study activities should be assessed for efficiency and potentially redirected toward evidence-based student support programs such as tutoring, mentoring, or early alert systems. Third, funding frameworks must be designed with flexibility to accommodate delayed responses to economic and policy changes.

The study also suggests tying a portion of public funding to medium-term graduation outcomes rather than short-term enrollment figures. This shift could incentivize institutions to focus more on supporting student progression rather than merely attracting new entrants.

While focused on Lithuania, the study’s findings resonate with broader trends in higher education globally. Many countries are adopting performance-based or voucher-style funding mechanisms similar to Lithuania’s hybrid model. As such, the insights about the limited impact of general funding and the stronger influence of targeted, strategic allocations may apply elsewhere, particularly in systems undergoing similar transitions.