Sources of China's Economic Growth, 1952-1999: Incorporating Human Capital Accumulation

Abstract

July 2001 Both productivity growth and factor accumulation figured significantly in China's remarkable growth performance between 1978 and 1999, a period of reform. Considering China's need for an innovation-based knowledge economy, the recent declining rate of human capital accumulation - education - is a cause for concern.

China's performance in economic growth and poverty reduction has been remarkable. There is an ongoing debate about whether this growth is mainly driven by productivity or factor accumulation. But few past studies had incorporated information on China's human capital stock, and thus contained an omission bias.

Wang and Yao construct a measure of China's human capital stock from 1952 to 1999 and, using a simple growth accounting exercise, incorporate it in their analysis of the sources of growth during the pre-reform (1952-1977) and the reform period (1978-1999).

They find that the accumulation of human capital in China (as measured by the average years of schooling for the population aged 15 to 64) was quite rapid and contributed significantly to growth and welfare.

After incorporating human capital, they also find that the growth of total factor productivity still plays a positive and significant role during the reform period. In contrast, productivity growth was negative in the pre-reform period. The results are robust to changes in labor shares in GDP.

The recent declining rate of human capital accumulation is a cause for concern, if China is to sustain its improvements in growth and welfare in the coming decade. Funding for basic education is unevenly distributed and insufficient in some poor regions.

This paper - a product of the Economic Policy and Poverty Reduction Division, World Bank Institute - is part of a larger effort in the institute to examine country experience on globalization and growth. The authors may be contacted at [e-mail] or [e-mail].