THE CONTRIBUTION OF HUMAN CAPITAL TO CHINA'S ECONOMIC GROWTH

John Whalley () and Xiliang Zhao ()
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John Whalley: Centre for International Governance Innovation (CIGI) and Department of Economics, Faculty of Social Science, Western University, 1151 Richmond Street N London, Ontario N6A 5C2, Canada
Xiliang Zhao: School of Economics, Xiamen University, and Key Laboratory of Econometrics, Ministry of Education, Xiamen, China 361005, China

China Economic Policy Review (CEPR), 2013, vol. 02, issue 01, 1-22

Abstract: This paper develops a human capital measure in the sense of Schultz [Schultz, T. W.1960. "Capital Formation by Education."Journal of Political Economy, 68: 571, University of Chicago Press.] and uses this to reevaluate the contribution of human capital to China's economic growth rather than relying on years of schooling as in current literature. The results indicate that human capital plays an important role in China's economic growth, 38.1% of economic growth over 1978–2008, and even higher for 1999–2008. In addition, because human capital formation accelerated following major educational expansion increases after 1999 (college enrollment in China increased nearly fivefold between 1997 and 2007) while growth rates of Gross domestic product (GDP) are little changed over the period after 1999, total factor productivity (TFP) increases fall if human capital is used in growth accounting as we suggest. TFP, by our calculations, contributes 16.92% of growth between 1978 and 2008, but this contribution falls sharply between 1999 and 2008. TFP growth estimates along with the high contribution of physical and human capital to economic growth seem to suggest that there could have been decreases in the efficiency of input usage in China or worsened misallocation of physical and human capital in recent years. These results underscore the importance of efficient use of human capital, as well as the volume of human capital creation, in China's growth strategy.

Keywords: China's economic growth; human capital; growth accounting (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1142/S1793969013500015

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