Incorporating human capital accumulation

China’s performance in economic growth and poverty reduction has been remarkable. There is an on-going debate about whether this growth is mainly driven by productivity or factor accumulation. Few studies however have incorporated annual data on China’s human capital stock, and thus contained an omission bias. In this paper, we construct a measure of China’s human capital stock from 1952-1999, and employ it in our growth accounting analysis. We found that, first, the accumulation of human capital was quite rapid and it contributes significantly to growth and welfare. Second, after incorporating human capital, the growth of total factor productivity still plays a positive and significant role during the reform period 1978-1999. In contrast, productivity growth was negative in pre-reform period. Results are robust to changes in labor shares in GDP. The recent declining rate of human capital accumulation is a matter of concern, if China is to sustain its growth and welfare improvement in the next decade