Research Highlight

Sun, S. (2024), The Pro-growth Effect of Tertiary Education: Evidence from the University Expansion in China.

The Chinese government implemented an unprecedented tertiary education expansion in 1999, motivated as a response to the shock of 1997 Asian Financial Crisis. The expansion resulted in different provinces being affected differently. Utilizing this provincial variation as a source of identification, this study assesses its pro-growth effect on the gross regional product per capita in Chinese provinces, by employing the synthetic control method. Our estimations find that the expansion promotes the provincial gross regional product per capita in around six years post-treatment (ten years post-policy implementation), which then grows over time. The finding of significant pro-growth effects is an unintended consequence of the expansion policy, and highlights the importance of human capital in economic growth. In addition, together with existing studies that discover short-run negative impacts of the expansion, such as higher unemployment rates and decreasing college premium, our finding points towards an interesting trade-off of short-run pains versus long-run gains. Such a trade-off suggests policy setting in tertiary education needs to be sufficiently forward-looking, owing to the nature of human capital accumulation.