Sources of China's economic growth 1952–1999: incorporating human capital accumulation

Abstract

China's economic growth has been remarkable since the reform started in 1978. There is an ongoing debate about whether this performance is driven mainly by productivity growth or by factor accumulation. But few past studies taken human capital into account, and thus contained an omission bias. In this paper, we construct a measure of China's human capital stock over 1952–1999 and employ it in our growth accounting exercise. We find that, first, in China, the accumulation of human capital was quite rapid and it contributed significantly to growth and welfare; second, after incorporating human capital, the growth of total factor productivity (TFP) still played a positive role in GDP growth in the reform period, while it was negative in the prereform period. These results are robust changes in labor shares in GDP and in depreciation rates. An implication is that a high priority should be given to human capital accumulation and productivity growth, if China is to sustain its growth and welfare improvement in the next decade.