The impact of human and physical capital accumulation on Chinese growth after 1994: A spatial econometric approach

Abstract

Using a panel data of 30 provinces for the period 1995–2013, this paper investigates the impact of physical and human capital accumulation on economic growth in China after the Deng Xiaoping’s ‘southern tour’ of 1992 and the tax reform of 1994. Different spatial panel specifications are used to detect the evolution of spatial dependence within and among provinces, with physical capital disaggregated at sector level. This analysis suggests that: first, the contribution of factor inputs to economic growth appears significantly higher compared to the same contribution previously analyzed by the literature before 1994, as does the magnitude of spatial spillovers. Secondly, the impact of physical capital on GDP per worker remains notably higher than that of human capital, despite the significant and consistent increase in public expenditures on education since the beginning of the new century. Thirdly, no noticeable difference is detected at sector level in the magnitude of intra- and inter-provincial spillovers for physical capital. Overall, the dynamics of these increasing spatial interactions could constitute an important source of information for policy makers, leading to a better understanding of the process of regional growth and to the formulation of more effective policy strategies; for instance, a relaxation of the restrictions on migration imposed by the current hukou system might help increase the magnitude of human capital spillovers.