Education and Economic Growth: Evidence from China and Policy Implications

Over the last two decades, China has witnessed extraordinary growth, which generates interest across the world. While many studies have been conducted to investigate relation of education and economic growth, no systematic efforts have been made to assert causality between education and economic growth. Based on panel data from China, which cover thirty provinces over a period of twenty years from 1978 to 1997, this present study develops one of the first detailed national and provincial average years of schooling measures and physical capital stock measures for China, and examines causality between education and economic growth by employing more acceptable econometric models to account for lagged effects of education. In particular, a revised aggregate production function and autoregressive lagged growth regression model, which explicitly includes lagged dependent variables, have been estimated by a special statistical approach to take into consideration the unique features of panel data. This study finds that education at large and primary, secondary and higher education all have significant positive lagged effects upon economic growth, which in this study is measured as total GDP and real per capita GDP growth as well. Dramatic variation across three geographic regions in terms of impact of education has been detected, which may signal fundamental disparity of the combination of factor inputs in these regions. This study suggests that balanced development of education and other factors are central to the sustainable long-term growth, and education is one of the causes for economic growth