Regional Differences and Threshold Effects of Capital-Skill Complementarity in China

Ren Wang and Hongqi Ma

Emerging Markets Finance and Trade, 2017, vol. 53, issue 6, 1425-1441

Abstract: On the framework of Chris and Viera (2005), this article studies the capital-skill complementarity and its regional differences of China, firstly. It is shown that there exists evidence in favor of capital-skill complementarity on the full sample of China. When we test its regional differences, we find no evidence in favor of capital-skill complementarity in the central and western regions, but strong evidence in the eastern region. Further study finds that, the “capital-skill complementarity” exists in the threshold effect. Thus, we argue that the original differences of capital-skill complementarity are relative to the economic development. These results reveal that the low-income region (such as the central and western regions) tends to allocate their capital to complement their abundance of unskilled labor but not skilled labor, but the middle-income region (such as the eastern region) shows just the opposite trend. In short, this article provides some new evidences for the nonlinearity of capital-skill complementarity and supports the viewpoint on “transitory phenomenon” of capital-skill complementarity.

Date: 2017
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DOI: 10.1080/1540496X.2016.1244511

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