Challenges Facing the People’s Republic of China
Edited by Juhzon Zhuang, Paul Vandenberg and Yiping Huang
Chapter 17: Education and human capital development
Strengthening education and developing human capital are essential for the People’s Republic of China (PRC) to avoid the middle-income trap. The reasons for this are fourfold. First, education and human capital development are among the most effective ways to achieve rapid economic development and improved labor productivity. In Cai and Wang’s (1999) decomposition of the PRC’s growth from 1978 to 1998 into capital, labor, human capital, and labor transfer, human capital contributed 24 percent to annual gross domestic product (GDP) growth. In addition, Cai and Qu (2010) find that marginal labor productivity in manufacturing rises by 17 percent for each year of additional schooling. Second, nearly all high-income economies attached great importance to education and human capital development when they made the transition from the middle-income stage. Two important models are Japan and the Republic of Korea, both well known for increasing education investment and instituting reforms to improve access and raise the quality of education during their economic transformations. For example, the Republic of Korea increased education expenditure substantially from the 1970s and encouraged a major increase in private investment in education. Third, returns to education have increased rapidly in the PRC (Lai 1999; Li et al. 1999). Gustafsson and Li (2000) find a substantial rise in the returns for a four-year college education compared with a high school education for male workers, from 9 percent in 1988 to 16 percent in 1995.
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