An Empirical Study On The Effects Of Human Capital On Economic Growth

The topic of nexus between economic growth&human capital has been discussed by scholars all over the world via large quantities of theoretical&empirical analysis, though ramifications often appear in final results due to different datasets, model specifications, estimation methods etc. The current studies have not provided systematic answers to the following three questions:What differences does the human capital-economic growth nexus appear across regions and years? What are the proper economic models to specify the nexus? What are the appropriate methodologies for estimation? Hence, it is an academically important project to study the human capital-economic growth nexus and provide answers to the above questions.With the advent of the "12th five-year plan", China’s economic growth will transit its emphasis from quantitative growth to qualitative growth. The development targets for China during the "12th five-year" are to achieve technology amelioration, develop modern industries and capital-intensive industries. The technological shift will result in varies of the labor force demand structure. The coming knowledge-based economy stands for a further emphasis on the value of human capital. Therefore, during the crucial period of China’s economic transformation, it makes huge sense to study the level and channels that human capital contributes to economic growth, propose strategic suggestions for the construction and stock of human capital in order to provide solutions for China’s sustainable economic development. The research objectives of the article are as follows:Firstly, we conduct an empirical analysis on human capital and economic development of214global economies to examine the cross-country and overtime difference regarding the contribution from human capital to economic growth, and obtain the general principles via the international comparison of the relevant experiences. Secondly, we analyze the human capital and economic growth in31metropolitan cities in China to examine the cross-city and overtime difference regarding the effects of human capital on economic growth in China. We provide comments on China’s human capital, economic development and the impact of the former on the latter, by viewing together the Chinese and international experience. In addition, we provide policy suggestions to improve the human capital-economic growth nexus in consistent with the economic transformation strategy proposed in the "12th five-year plan".Several conclusions are found via the above analysis:Firstly, based on an international comparison of the G20experience, we find China falls behind the advanced countries and also some emerging market economies in education and health care. Therefore, China’s secondary and tertiary education is not overdeveloped but underdeveloped. China possesses a fabulous economic growth rate, which makes other economies jealous. However, if China intends to become an internationally powerful country, its weakness in human capital is a hindrance. It is no doubt that China has been paying an increasing attention and constantly devote to the overall development of human capital. The rapid changes of China’s "Human Development Indicators" are the best evidence towards the achievements. The rapid growth in China’s economy cannot exist without the backup of an improving human capital.Secondly, based on econometric analysis towards plenty of countries, we find for most countries secondary school enrollment and initial life expectancy have significant positive impacts on economic growth. In details, the positive impact can be decomposed into exogenous and endogenous effect. Both effects turn to be significant, though exogenous effect appear to be stronger than endogenous effect, which refers to the influence of human capital on economic growth via affecting total factor productivity. The above results appear robust with different model specifications. The robustness also turns to be strong for different economies and periods.Thirdly, human development indicators have a robust positive impact on total factor productivity. Its endogenous effect is positive and robust, and the robustness does not diminish from one experience to another. However, the exogenous effect is insignificant. Therefore, human development indicators affect economic growth mostly via its influence towards total factor productivity.Fourthly, based on panel analysis of China’s provincial and municipal data, we find for most provinces or cities, tertiary enrollment has a significant positive impact on economic growth. Moreover, this impact can be decomposed into endogenous and exogenous growth effects, both of which appear significant. In addition, the exogenous growth effect appears to be stronger than the endogenous growth effect. At last, this positive impact turn to grow as time goes by. The above results are robust with different model specifications and the robustness will not diminish with respect to different experiences. China has been focusing on the development of labor-intensive economies, which depresses the development of highly-educated human capital. It turns out that China does not only have problems in human capital endowment, but also economic structure. The two issues are strongly interdependent, and should be developed in coordination to serve the future development of the society.The innovations of this article are as follows:Firstly, we employ a flexible specification of the growth model. Most domestic scholars begin with production function to study the relationship of human capital and economic growth. The production function reflects factors of production influencing growth, but which are not the only growth factors. Economic growth is considered to be affected by both supply factors and demand factors. The supply factors do not only include factors of production, but also production environment, social institutions, economic background etc. A sole consideration of production function will limit the research and is likely to lead to biased results. We employ a flexible economic growth model in this article, which includes major demand and supply factors of growth. The flexible economic growth model does not presume a specification for production function, which avoids restriction on production technology and make the results more genuine.Secondly, we employ a brand new specification of human capital. Most studies use human capital as a factor of production to investigate the nexus between human capital and growth. However, we do not believe education and health work as machines and plants to directly get involved in the process of economic production. Instead, they describe the economic and social background of production. Therefore, it is included in the model as a lag variable, which is different from other studies. In addition, most domestic researchers employ single variable such as average education, number of students adjusted with student-teacher ratio as measure for human capital. However, both measures lack in reasonability in practice. On one hand, targets and standards vary with education level. Human capital will present different values and functions with different level of education. If we calculate the average education by mixing different levels of education, it would be inappropriate to do so. On the other hand, the number of students will not be an effective reflection of the dissemination of education. An increase in the number of students is likely to follow a rise of the corresponding age population. In addition, education is not the only measure for human capital. Therefore, we employ several single measures for human capital to make up for the problems mentioned above.Some other domestic scholars employ composite indexes to measure human capital, which is calculated based on single indexes. The calculation appears to be precise; however, lack in wideness remains a problem. Due to diverse selection of simple indexes and varied weights given, the composite index appears fairly different in structures, which do not offer the basis of economic comparison. In order to make up for the problem, we use the "Human Development Indicators" developed by the United Nations, which is commonly used worldwide, as the composite measure of human capital.Thirdly, we are innovative with the angle of research. Domestic researchers will turn to barely China’s data when they analyze the nexus between human capital and economic growth. We employ international data and combine it with economic theory to explain the global experiences and obtain general principles via international comparisons. At the same time, we will study the China’s case based on the principles found in international comparisons. Through two different aspects of analysis, our research possesses higher wideness, diversity and depth.