Is China up to the Test? A Review of Theories and Priorities for Education Investment for a Modern China

• Author: Kate Glazebrook,Ligang Song
• DOI: http://doi.org/10.1111/j.1749-124X.2013.12028.x
• Date: 01 July 2013
• Published date: 01 July 2013

56 China & World Economy / 56–78, Vol. 21, No. 4, 2013

©2013 The Authors

China & World Economy ©2013 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Is China up to the Test? A Review of Theories

and Priorities for Education Investment

for a Modern China

Kate Glazebrook, Ligang Song*

Abstract

This paper reviews the key theories relating to the role of education in economic development

and social change and how education, as a critical component of total factor productivity,

contributes to sustained economic growth. It examines how China’s education policy reflects

the country’s unique dual economy. Focusing on the post-reform period, the paper contends

that while progress has been made, there are risks to China’s future growth prospects from

failing to reap the benefits of sound education policy. It argues that if the Chinese education

system is to continue to be a driver of rather than a drain on economic growth, and if China

is to successfully manage its transition towards more inclusive, sustainable and equitable

growth, reforms will be needed to improve the quality of education at all levels and to create

an environment in which China’s extensive human capital is duly recognized and respected.

Crucially, the education system should be transformed to ensure it promotes a comprehensive

range of human capabilities, including those that go beyond the part humans play in

augmenting production possibilities.

Key words: education system, human capital, technical change, total factor productivity

JEL codes: I21, I25, I28

I. Introduction

Human capital is the asset that ultimately determines the wealth of China (Heckman, 2004,

p. 66).

*Kate Glazebrook, Kennedy School of Government, Harvard University, Cambridge, MA, USA. Email:

kate_glazebrook@hks14.harvard.edu; Ligang Song (corresponding author), Crawford School of Public

Policy, Australian National University, Canberra, Australia. Email: ligang.song@anu.edu.au. The paper

was prepared for the International Symposium on China’s Demographic Transition and Socio-economic

Development held at the Chinese Academy of Social Sciences, Beijing, 20–21 August 2012. The authors

wish to thank Qing Wu for her insights on the paper.

57

Theories and Priorities for Education Investment for a Modern China

©2013 The Authors

China & World Economy ©2013 Institute of World Economics and Politics, Chinese Academy of Social Sciences

How societies organize themselves

—

socially, economically, politically, and

administratively

—

to prepare the young for the future is perhaps the most important driver

for long-run well being (Pritchett, 2009, p. 160).

This paper examines what theory suggests about the role of education in economic

development, focusing on China. It investigates how education contributes to improved

economic performance in both developing and developed world contexts, and what the

level and nature of China’s educational investment suggests about its current stage of

development and its future growth prospects.

The paper is structured as follows. Drawing on relevant theoretical literature, including

both the growth accounting model and development economic concepts, Section II

establishes the importance of education to economic development. Reflecting the transitional

state of Chinese development, it will contrast the priorities for education policy in both

developing and developed countries. It will also consider how education policy fits within

a government’s investment portfolio. Section III considers China’s recent economic

development and interrogates the categorization of China as a “middle income country.”

Drawing on relevant data, it illustrates how China’s education policy reflects the nation’s

economic transition, demonstrating elements of both a developing and an advanced

economy. Finally, Section IV discusses the policy implications of this analysis, with particular

focus on the institutional changes required to ensure that the nation’s human capital

continues to be a driving force for economic development, rather than a drain upon it.

.

II. The Role of Education in Economic Growth

1. Total Factor Productivity and Growth Accounting

The relationship between education and economic growth is complex and multidimensional.

As outlined by Hanushek and W

ö

β

mann (2007, p. 20), there are at least three mechanisms

by which the two may be related:

First ... education increases the human capital inherent in the labor force, which increases

labour productivity and thus transitional growth towards a higher equilibrium level of

output ... Second, education may increase the innovative capacity of the economy, and the

new knowledge on new technologies, products and processes promotes growth ... Third,

education may facilitate the diffusion and transmission of knowledge needed to understand

and process new information and to successfully implement new technologies devised by

others, which again promotes economic growth.

Traditional economic theory, and growth accounting in particular, highlights the role