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Does higher education expansion enhance productivity?

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  • Yao, Yao

Abstract

This paper studies the impact of the higher education expansion in China on average labor productivity. I argue that in an economy such as China’s, where allocation distortions widely exist, educational policy affects labor productivity not only through its effect on human capital stock, but also through its effect on human capital allocation across sectors. Thus, its impact could be limited if misallocation becomes more severe following the policy. I build a two-sector general equilibrium model with policy distortions favoring the state sector and overlapping generations of heterogeneous households making educational and occupational choices. Quantitative results show that, given policy distortions, China’s higher education expansion had a small but negative effect on its average labor productivity (–2.5%). The crowding out of productive capital caused by magnified resource misallocation plays a key role in driving down productivity. However, the productivity effect of the educational policy would turn positive if distortions were further reduced or removed.

Suggested Citation

  • Yao, Yao, 2019. "Does higher education expansion enhance productivity?," Journal of Macroeconomics, Elsevier, vol. 59(C), pages 169-194.
  • Handle: RePEc:eee:jmacro:v:59:y:2019:i:c:p:169-194
    DOI: 10.1016/j.jmacro.2018.11.009
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    More about this item

    Keywords

    Higher education expansion; Economic reform; Human capital; Allocation distortion; Productivity;
    All these keywords.

    JEL classification:

    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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