Human Capital, Economic Growth, and Regional Inequality in China

56 Pages Posted: 9 Mar 2007

See all articles by Belton M. Fleisher

Belton M. Fleisher

Ohio State University (OSU) - Economics; IZA Institute of Labor Economics

Haizheng Li

Georgia Institute of Technology - School of Economics

Min Qiang Zhao

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

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, TFP growth, FDI, human capital, technology spillovers

JEL Classification: O15, O18, O47, O53

Suggested Citation

Fleisher, Belton M. and Li, Haizheng and Zhao, Min Qiang, Human Capital, Economic Growth, and Regional Inequality in China (March 2007). William Davidson Institute Working Paper No. 857, IZA Discussion Paper No. 2703, Available at SSRN: https://ssrn.com/abstract=969041 or http://dx.doi.org/10.2139/ssrn.969041

Belton M. Fleisher (Contact Author)

Ohio State University (OSU) - Economics ( email )

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HOME PAGE: http://economics.sbs.ohio-state.edu/Fleisher/

IZA Institute of Labor Economics

Haizheng Li

Georgia Institute of Technology - School of Economics ( email )

217 Habersham
Atlanta, GA 30332
United States

Min Qiang Zhao

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A202, Economics Building
Xiamen, Fujian 361005
China

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