Human Capital, Economic Growth, and Regional Inequality in China

Belton M. Fleisher (), Haizheng Li () and Min Qiang Zhao ()

No wp857, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan Stephen M. Ross Business School

Abstract: We study the dispersion in rates of provincial economic- and TFP growth in China. Our results show that regional growth patterns can be understood as a function of several interrelated factors, which include investment in physical capital, human capital, and infrastructure capital; the infusion of new technology and its regional spread; and market reforms, with a major step forward occurring following Deng Xiaoping’s “South Trip” in 1992. We find that FDI had much larger effect on TFP growth before 1994 than after, and we attribute this to emergence of other channels of technology transfer when marketization accelerated. We find that human capital positively affects output per worker and productivity growth. In particular, in terms of its direct contribution to production, educated labor has a much higher marginal product. Moreover, we estimate a positive, direct effect of human capital on TFP growth. This direct effect is hypothesized to come from domestic innovation activities. The estimated spillover effect of human capital on TFP growth is positive and statistically significant, which is very robust to model specifications and estimation methods. The spillover effect appears to be much stronger before 1994. We conduct cost-benefit analysis and a policy “experiment,” in which we project the impact increases in human capital and infrastructure capital on regional inequality. We conclude that investing in human capital will be an effective policy to reduce regional gaps in China as well as an efficient means to promote economic growth.

Keywords: Regional Inequality; China; Human Capital; Foreign Direct Investment; Spillovers; Technology Transmission (search for similar items in EconPapers)
JEL-codes: O15 O18 O47 O53 (search for similar items in EconPapers)
Date: Written 2007-01-01
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Related works:
Working Paper: Human Capital, Economic Growth, and Regional Inequality in China (2008)
Working Paper: Human Capital, Economic Growth, and Regional Inequality in China (2007)
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