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The Empirical Analysis of the Human Capital’s Influence on the
Economic Growth of Jiangxi
ZHOU Xuejun, ZHANG Xiao
School of Economics and Management, East China Jiaotong University, P.R.China, 330013
[email protected]
Abstract: It is a consensus that human capital influences economic growth. Jiangxi is backward in
economy; highly depend on agriculture and underdeveloped industry province. The main idea of this
paper is the mismatch between human capital and the growth of economy. With the statistical data which
is collected from 1978 to 2008 in Jiangxi providence, it imputed the stock of human capital and physical
capital. It analyzes the relationship between human capital and the economic growth of Jiangxi by using
ADF test, Co-integration Test and Granger Causality Test. The conclusions are as follows: GDP of
Jiangxi has built a long-term and balanced relation with physical capital and human capital. Human
capital is the Granger reason for the stock of physical capital. And it is also the Granger reason for the
growth of economy.
Keywords: Human capital, Economic growth, Cointegration Test
1 Instruction
In the early 20th century, when Schulz presented the concept of human capital in the first time, he
pointed out” the accumulation of human capital is a source of economic growth”. The conclusion of
endogenous growth theory: the growth of human capital plays an important part in technological
progress and economic growth. Human capital promotes the growth of economy directly and potentially.
Many studies have shown that human capital promotes the growth of economy, and the economic
growth will enhance human capital as well.
The western study of economic growth and human capital theory is focused on the reason of economic
growth. National study of the relationship between economic growth and human capital is based on the
traditional Cobb-Douglas production function. Many other production functions which are from
Cobb-Douglas production function has been used to search the relationship between human capital and
economic growth. In 2007, Lu Jin and Li Xia estimated the west human capital resource using education
period method and education cost method. And the conclusion is as follow: In the case of the low initial
value of human capital, the economic growth will become fast when it reaches a certain number. Sun
Jingshui and Xu Lili studied the relationship between Zhejiang human capital and economic growth.
The conclusion is that human capital plays more in the growth of economy than physical capital. And
labor for simple work is in surplus. In 2009, when chen established the index system to evaluate the
relationship between Gansu human capital and economic growth, he point out that there is an long-term
and balanced relation between Gansu human capital and economic growth. But human capital has no
significant effect on economic growth in a short time. Xu Hui and Wang Jing analyzed the Chinese
human capital. Conclusion: physical capital is still the dominant power to promote economic growth in
our country. This indicates that our country is still in the extensive economic growth mode, but the
marginal contribution of human capital is greater than physical capital. Human capital plays an
important in Jiangxi economic growth. This paper tries to figure out the relationship between human
capital and Jiangxi economic growth with the help of modern econometric methods.
2 Computation Model and Empirical Analysis
2.1 Model
The production function based on Cobb-Douglas production function:
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Yt = At K tα Lβt H tγ
(1)
Computing logarithm on both sides:
InYt = InAt + α InK t + β InLt + γ InH t + ut
(2)
Yt , K t , Lt , H t identify the total product, the stock of physical capital; labor input amount and the stock
of human capital in t term. α , β , γ identify the elastic coefficient of the stock of physical capital;
labor input amount and the stock of human capital. PS: α + β + γ = 1 .
Computing mathematics with term (2):
g = g tfp + α g k + β g l + γ g h
(3)
This is the Velocity equations of economic growth.
2.2 Origin of Data Resource
The origin data is based on Jiangxi Statistical Yearbook and China Statistical Yearbook which is
collected from 1978 to 2008. This paper calculates the level of regional output with GDP which uses the
prices in 1978 as the base conversion price. It estimated the stock of physical capital with the perpetual
inventory method which is proposed by Godsmith in 1951.
K t = K t −1 (1 − δ ) + I t , K t identify the
I
stock of capital of the t year, t identify the net investment amount of t year, δ identify capital
depreciation rate. L measures with the social employment rate and the 15-64 years average schooling
time method. Considering the availability of data, the paper uses the average years of schooling time to
5
∑x H
i
H=
i
i =1
5
∑H
i
i =1
. This formal divide all the educated
measure the stock of human capital H. The formal
labor into five parts: using 0,6,9,12,16 to identify uneducated level, primary school level, junior school
level, senior school level and college level.
2.3 Unit Root Lest
Non-stationary time series model may cause “fake regress”, so checking the stationary time series is
necessary. This paper uses unit root lest method which is proposed by Dicky and Fuller. It uses ADF
check to avoid the random error term instead of white noise influence. The result of using eviews5.0 is
as follows:
The checking result of table 1 shows that, Non-stationary time series of economic growth (1nYt),
scientific research (1nRt) and the stock of human capital (1nHt). The raw sequence data is not stable.
But the result becomes stable by using second difference checking. The order of these variables is the
same. So the cointegration relationship between these variables is double checked.
2.4 Co-integration Test
Cointegration theory is proposed by Engle and Granger in the 80 of 20th century. It defines the
long-term and stable relationship between unstable single level variables. The main idea is: Although
all the variables are unstable when there are two or more variables. The impact of trend items may be
counteracted by a linear combination. The result is that all the variables combine into a stable variable.
The meaning is to avoid the long-term balance relationship and short-term dynamic relationship
between fake regress and separated variable. The commonly used method of Co-integration Test is
Engle-Granger check between two variables and Jhansen check of several variables. This paper uses the
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second method. Result is in table 2.
variable
Check type
Table 1 ADF Unit Root Lest
ADF statistics
（c, t, k）
critical value
conclusion
InY
(c,t,2)
1.484965
-2.971853
unstable
∆ 2 InY
(c,t,2)
-7.138440
-2.976263
stable
InK
(c,t,3)
1.548615
-2.976263
unstable
∆ 2 InK
(c,t,1)
-5.837682
-2.971853
stable
InL
(c,t,1)
-1.899861
-3.574244
unstable
∆ 2 InL
(c,t,1)
-6.510756
-3.580623
stable
InH
(c,t,1)
-0.907196
-2.963972
unstable
∆ 2 InH
(c,t,2)
-7.547612
-2.976263
stable
（
）
PS: in checking type, c, t, k identify the constant term, trend term and optimal lag phase in stationary
test. Optimal lag k is the criterion of minimizing AIC and SC. Using significance level of 5% to be the
critical value.
Table2 Result of Jhansen test
Table 2 shows that, a Cointegration relationship is embraced in the model when the significant level is
0.05, such as:
（）
InY = 0.913InK + 0.032 InH − 0.055InL
4
(0.02483) (0.01298) (0.04194)
The relative coefficient are: α = 0.913, β = 0.032, γ = 0.055 , input these coefficient into term(1)
and get the product function:
Yt = At K t0.913 L0.032
H t0.055
t
(5)
And the rate equation of economic growth in Jiangxi is:
g = g tfp + 0.913 g k + 0.032 g l + 0.055 g h
(6)
With the analysis, it has been found that the output elasticity of physical capital is 0.913. Total output
value will increase 0.913 percent when the physical capital increase 1 percent. This is total higher than
the output elasticity between human capital and labor input amount.
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2.5 Causality test
Consequence relationship is the dependency of variables. The consequent variable is determined by the
original variable. The change of original variable will cause the change of consequent variable as well.
The basic support of Granger is: the future has nothing to do with the past. If the change of Y is caused
by X, X must change before Y. In the paper, the consequent relationship of T, K, L, and H will be
checked. Result is in table 3.
Null hypothesis
H is not the Granger reason of Y
Y is not the Granger reason of H
L is not the Granger reason of Y
Y is not the Granger reason of L
K is not the Granger reason of Y
Y is not the Granger reason of K
L is not the Granger reason of H
H is not the Granger reason of L
K is not the Granger reason of H
H is not the Granger reason of K
Table3 Result of Granger check
F-Statistic
Probability
7.65550
0.50041
0.50276
1.39428
3.52481
21.2512
0.35440
1.42995
0.64529
8.91502
0.0027
0.6125
0.6111
0.2674
0.0625
5.E-0.6
0.7052
0.2590
0.5334
0.0013
Assay
Reject conclusion
Support conclusion
Support conclusion
Support conclusion
Reject conclusion
Reject conclusion
Support conclusion
Support conclusion
Support conclusion
Reject conclusion
Table 3 shows that: in significant level a = 0.05, the economic growth of Jiangxi is the Granger reason
of physical capital, but it is not the Granger reason of human capital. Human capital is the Granger
reason of physical capital and economic growth. Physical capital is the Granger reason of economic
growth, but it is not the Granger reason of the stock of human capital.
3 Conclusion and Advises
3.1 The main conclusion
This paper mentioned the factors of economic growth in Jiangxi province from 1978 to 2008, and built
the model which describes the relationship between area GDP, physical capital and human capital. It
empirically analyzed the fluctuant relationship of them, and proposes three conclusions:
1) The output elasticity of physical capital is 0.913. It is much higher than the human capital and the
output of elasticity of labor input, which means the economic growth of Jiangxi province, still depend
on physical capital investment. The economic growth is still extensive type.
2) There is a long-term and balanced relationship between Jiangxi human capital and economic growth.
And the stock of human capital is obviously the Granger reason of the stock of physic capital. It is the
Granger reason of economic growth as well. This means the function of human capital in economic
growth has gradually shown up.
3) The output elasticity of human capital is 0.055. It is much lower than the output elasticity of
physical capital. Because Jiangxi is an agricultural, lagging industrial, high proportion of labor-intensive
industries, low stock of human capital province. Human capital does not play enough part in the
economic growth. But physical capital plays a lot. This matches the real product situation of Jiangxi
province.
3.2 Advise for policy
1) Enhance the input on education and pay attention to human capital investment. Education, especially
higher education is an important way to gather human capital. First, government should strengthen
education investment in undeveloped areas. The general nine-year compulsory education should be
guaranteed, and then gradually expand the higher education. Second, local government should increase
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the investment in education, accelerate the pace of education.
2) Rationally allocate the proportion of human capital investment and physical capital investment. The
human capital contributes a lot on economic growth directly, and infects the physical capital and labor
investment as well. Human capital and physical capital should be allocated rationally so that economy
can develop fast and stably.
3) Implement incentive mechanism for human capital. In fact, positive human capitals which contribute
a lot on economic growth are often not reworded what they do reword. If this lasts a long time, then
human capital may lack of motivation gradually and cannot play its role in economic growth. Therefore,
Government should increase financial investment to compact market failure, draw up incentive
mechanism to make it producing lasting impetus on human capital and then impact economic growth
sustained.
4) Promote the policy which encourages human capital to innovate and make the social superiority of
market economic system works. The function of human capital in economic growth highly depends on
excellent politic environment. Overall, the total factor productivity does not share a lot in Jiangxi
economic growth. Both policy innovation and increasing human capital investment are the vital factors
in enhancing economic growth.
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