A comparison of conventional linear regression methods and neural networks for forecasting educational spending

This study presents an application of neural network methods for forecasting per pupil expenditures in public elementary and secondary schools in the United States. Using annual historical data from 1959 through 1990, forecasts were prepared for the period from 1991 through 1995. Forecasting models included the multivariate regression model developed by the National Center for Education Statistics for their annual Projections of Education Statistics Series, and three neural architectures: (1) recurrent backpropagation; (2) Generalized Regression; and (3) Group Method of Data Handling. Forecasts were compared for accuracy against actual values for educational spending for the period. Regarding prediction accuracy, neural network results ranged from comparable to superior with respect to the NCES model. Contrary to expectations, the most successful neural network procedure yielded its results with an even simpler linear form than the NCES model. The findings suggest the potential value of neural algorithms for strengthening econometric models as well as producing accurate forecasts. [JEL C45, C53, I21]  1999 Elsevier Science Ltd. All rights reserved.