Working Paper: NBER ID: w16592
Authors: John Whalley; Xiliang Zhao
Abstract: This paper develops a human capital measure in the sense of Schultz (1960) and then reevaluates the contribution of human capital to China's economic growth. The results indicate that human capital plays a much more important role in China's economic growth than available literature suggests, 38.1% of economic growth over 1978-2008, and even higher for 1999-2008. In addition, because human capital formation accelerated following the major educational expansion increases after 1999 (college enrollment in China increased nearly fivefold between 1997 and 2007) while growth rates of GDP are little changed over the period after 1999, total factor productivity 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 is -7.03% between 1999 and 2008. Negative TFP growth along with the high contribution of physical and human capital to economic growth seem to suggest that there have been decreased in the efficiency of inputs 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: Human Capital; Economic Growth; China
JEL Codes: O10; O40; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Human Capital (J24) | Economic Growth (O49) |
| Higher Education Expansion (I23) | Human Capital (J24) |
| Human Capital Stock Growth (J24) | Human Capital (J24) |
| Physical Capital (E22) | Economic Growth (O49) |
| Misallocation of Human and Physical Capital (D29) | Efficiency in Growth Model (O41) |
| Total Factor Productivity Growth (O49) | Economic Growth (O49) |