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College Expansion, Trade and Innovation: Evidence from China

Ma, Xiao (2020): College Expansion, Trade and Innovation: Evidence from China.

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Abstract

This paper examines how China’s expansion of college education since 1999 affects innovation and exports’ skill content. I develop a two-country spatial equilibrium model, featuring skill intensity differences across industries and heterogeneous firms’ innovation and exporting choices. I empirically validate my model mechanisms about how the college expansion affects innovation and exports, exploiting differential supply shocks of college-educated workers across regions due to historical college endowments. I apply the resulting reduced-form estimates in the calibration to discipline key elasticities that determine the magnitude of export expansion. Under different assumptions about firm entry, I find that China’s college expansion explained 40–70% of increases in China’s manufacturing R&D intensity between 2003–2018 and triggered export skill upgrading. I also find that trade openness amplified the impact of this education policy change on China’s innovation and production.

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