Elasticity-Growth Nexus in China’s Great Expansion from the Perspective of Heterogeneous Labor
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Highlighting skill difference rooted in heterogeneous labor, this paper employs SFA to estimate time-varying elasticity of substitution based on the panel data of Chinese provinces during 1996-2016, and further evaluate elasticity-growth nexus in ECM. Results show that it is both the capital-skill labor complementarity and the unskilled-skilled labor substitutability, rather than the capital-labor substitution proposed as the de La Grandville hypothesis, that develop into an engine of China’s sustainable economic growth; to be more specific, the differentiating of heterogeneous labor plays an essential role in the evolution of factor substitution, which cannot be ignored especially in China’s great expansion.
Factor substitution; Stochastic frontier analysis (sfa); Error correction model (ecm)