Economic Reform and Productivity Convergence in China

Abstract

This article investigates the effect of physical and human capital formation on the productivity growth of China. We focus on the market reform factors including ownership shifts, population policy, openness and fiscal expenditures on education, and the convergence of productivity growth within the traditional four economic regions of China. We find that Chinese economic miracle is mainly pushed by the (physical) capital service rather than human capital. The physical capital inputs contribute even more to the economic growth of China since the returns to education decrease with the education expansion and increasing tuition fees after 1994. The four economic regions of China show different growth patterns. The capital inputs mostly help the labour productivity (LP) growth of the West region and the wage growth of the interior region, but human capital formation contributes to the total factor productivity (TFP) of all four regions. Moreover, provinces within each region present strong evidence of convergence of productivity growth. The convergence is most prominent for the provinces within the Northeast and Coastal regions for LP and TFP growth, suggesting fast technology spillovers within these regions.