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Human Capital, Economic Growth, and Regional Inequality in China

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Author Info
Belton Fleisher () (Department of Economics, Ohio State University)
Haizheng Li () (School of Economics, Georgia Institute of Technology)
Min-Qiang Zhao () (Department of Economics, Ohio State University)

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Abstract

We show how regional growth patterns in China depend on physical,, human, and infrastructure capital; foreign direct investment (FDI); and market reforms, especially the reforms that followed Deng Xiaoping’s South Trip in 1992 those that resulted from serious hardening of budget constraints of state enterprises around 1997. We find that FDI had a much larger effect on TFP growth before 1994 than after, and we attribute this to the encouragement of and increasing success of private and quasi-private enterprises. We find that human capital positively affects output per worker and productivity growth in our cross-provincial study. Moreover, we find both direct and indirect effects of human capital on TFP growth. The direct effect is hypothesized to come from domestic innovation activities, while the indirect impact is a spillover effect of human capital on TFP growth. We conduct cost-benefit analysis of hypothetical investments in human capital and infrastructure. We find that, while investment in infrastructure generates higher returns in the developed, eastern regions than in the interior, investing in human capital generates slightly higher or comparable returns in the interior regions. We conclude that human capital investment in less-developed areas can improve economic efficiency, neither investment strategy is a magic bullet for reducing China’s regional income disparities.

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Paper provided by Ohio State University, Department of Economics in its series Working Papers with number 09-01.

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Length: 76 pages
Date of creation: Jan 2009
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Handle: RePEc:osu:osuewp:09-01

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Find related papers by JEL classification:
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Regional, Urban, and Rural Analyses
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Belton Fleisher & Haizheng Li & Min-Qiang Zhao, 2009. "Human Capital, Economic Growth, and Regional Inequality in China," Working Papers 09-01, Ohio State University, Department of Economics. [Downloadable!]
    Other versions:
  2. Hiroshi Sato, 2009. "Growth of Villages in China, 1990-2002," Global COE Hi-Stat Discussion Paper Series gd08-023, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  3. Belton M. Fleisher & Mi Zhou, 2009. "Are Patent Laws Harmful to Developing Countries? Evidence from China," Working Papers 09-07, Ohio State University, Department of Economics. [Downloadable!]
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