Human Capital, Marginal Productivity Of Factors And Regional Inequality

The Chinese government has been trying to reduce regional inequality for a long time. However, against the background of economic growth driven primarily by capital and technological progress is also playing an increasingly important role in economic growth, those policies under the guidance of the government such as financial transfer cannot accelerate the development of central and west regions. What are the reasons? In addition, while human capital, which is the source of technological progress, is always regarded as the crucial factor which explains the divergence in growth rates across countries and regions, many existing studies have focused on its direct effect on regional inequality. Therefore there are few researches have shed some light on the problem of the channel through which human capital influences regional inequality. Under such circumstance, based on those existing researches and by means of the theory of economic growth, human capital and modern econometrics, this dissertation aims at making a general analysis on the relation between human capital and the divergence in growth rates across regions both theoretically and empirically, and therefore to provide certain policy suggestions on narrowing regional inequality and achieving the coordinated development of regional economies.Based on the characteristic of economic development in China: although total factor productivity is playing an increasing important role in economic growth, the economic growth is still driven mainly by factor accumulation especially capital accumulation, and both of them are direct factors which can explain most part of the regional inequality, choosing factors and their efficiency as the breakthrough point of research, this dissertation firstly put forward an analytic framework that researches on regional inequality: human capital——total factor productivity——marginal productivity of factors——factors accumulation——economic growth according to the significant effect of technological progress on factor marginal productivity, factor accumulation and economic growth, as well as the indirect effect of human capital on technological progress. Compared with those existing studies, our analytic framework not only can effectively remedy defects in excessive emphasis on the function of technological progress or factor accumulation especially capital accumulation to a certain extent, but also emphasize the key role of technological progress in improving the quality of investment and the validity of accumulation, while improvement in the quality of investment and the validity of accumulation also play very important roles in promoting economic growth. Even more important, this analytic framework emphasizes the significant role of market-oriented means in reducing regional income disparity, which means that less developed areas can accelerate their economic growth by raising total factor productivity, thereby factor marginal productivity through raising the level of human capital, because the higher factor marginal productivity in less developed areas will make them attract relatively more factors. Undoubtly, with the development of marketization, the market-oriented means will play the key role in reducing regional inequality.This dissertation further makes an empirical study on the analytic framework which researches on regional inequality. The results show that human capital influences economic growth through Lucas approach (technological innovation), it accelerates total factor productivity significantly, while total factor productivity is the crucial factor which sustains the higher marginal productivity of capital (despite capital-labor ratio is improved gradually). It can raise the marginal productivity of labor too, the improvement in the marginal productivity of capital and labor will enhance the accumulation of capital and labor, then accelerate the rapid development of economy. By comparison, human capital's average annual contribution to total factor productivity is much higher than that of any other factors such as foreign direct investment, infrastructure investment, the degree of marketization and urbanization level in the central and west regions, while in the east region, the average annual contribution of human capital to total factor productivity is only less than that of urbanization level and the development of marketization. Therefore, the government further enhances human capital investment especially for central and west regions is the strategic choice for central and west regions to improve their total factor productivity, thereby their marginal productivity of factors, and to attract more requisites of production so as to narrow the gap in development between them and the east region.Owing to the important effect of human capital on total factor productivity, marginal productivity of factors, factors accumulation, thereby economic growth, this dissertation analyzes the current status of China's human capital investment. The results indicate that China's educational investment is still fairly low, and its regional inequality shows a trend of expansion. However, the social internal rates of return to higher education, senior and junior secondary education, and primary education are relatively higher in China, furthermore, the social internal rates of return to senior and junior secondary education are the highest, while the social internal rate of return to higher education is the lowest; the social internal rates of return to all levels of education of central and west regions are not lower than that of east region. So government's decision to further augment investment on education and assist the less developed areas to develop education is rational. As far as the structure of educational investment, the government should continue to make nine-year compulsory education universal across the country, and make great efforts to develop senior secondary education, and should continue to improve the quality of higher education.Finally, based on the dissertation's theoretical analysis and empirical results, we put forward relative policy suggestions on reducing regional inequality: First, insisting on the strategic choice that human capital accumulation is the fore-runner of economic development, aggrandizing social diversified investment, optimizing the structure of educational investment, and enhancing educational investment in central and west regions can raise the human capital stocks in central and west regions. Second, Enhancing system innovation and making use of human capital more efficiently will relieve the contradiction between the short supply of human capital and its strong demand in central and west regions. Only in this way can the central and west regions accelerate their economic growth and catch up the east region.