Human Capital, Technology Adoption and Firm Performance: Impacts of China's Higher Education Expansion in the Late 1990s

Abstract

We exploit a policy‐induced exogenous surge in China's college‐educated workforce that started in 2003 to identify the impact of human capital on productivity. Using a difference‐in‐differences estimation strategy, we find that industries using more human‐capital intensive technologies experienced a larger gain in total factor productivity after 2003 than they did in prior years. Exploring the pathways from human capital increases to TFP growth, we find that these industries also accelerated new technology adoption, as reflected in the importation of advanced capital goods, R&D expenditure and capital intensity, as well as employment of more highly skilled individuals. The productivity gains were weaker for domestic private firms than for foreign‐owned firms.