Education, human capital and regional economic differentials: An empirical test using China's provincial panel data

By applying the dynamic panel data method advocated by Arellano & Bond and the standard fixed effect method, this paper focuses on the effects of education on regional economic differentials in the standard growth regression framework. An interaction of population density and average schooling is employed to test the human capital externality hypothesis as proposed by Robert Lucas. We show that education does have a positive effect on the economic growth, and there exists some schooling externalities. Additionally, our growth regressions also show a strong conditional convergence in levels of per capita income across China's regions. The marginal return to education at steady state is about 22%. Several explanations of the results are then presented.