Abstract
We document that the employment share of high-skill-intensive services is much lower in China than in countries with similar GDP per capita. We build a model of structural change with goods and low- and high-skill-intensive services to account for this observation. We find that large distortions limit the size of high-skill-intensive services in China. If they were removed, both high-skill-intensive services and GDP per capita would increase considerably. We document a strong presence of state-owned enterprises in high-skill-intensive services and suggest that this leads to important distortions.
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