Climbing the Export Quality Ladder: Role of Human Capital

Abstract

This study assesses the effect of human capital expansion on China's export product quality. It employs the difference‐in‐differences (DID) framework based on a quasi‐natural experiment investigating the 1999 higher education enrollment expansion as the exogenous policy shock. The empirical results confirm that human capital expansion appreciably improved the quality of China's export products. Human capital expansion promoted the transformation and upgrading of old products and the development of new products in term of intensive margin; it strengthened the endowment advantages of incumbent high‐quality export enterprises while preventing low‐quality enterprises from entering the market through price competition on the extensive margin. This prevented quality decline. Further, the study reveals that the improvement effect driven by human capital came from both innovation‐induced and managerial efficiency improvement channels and was more prominent for large or foreign‐funded enterprises in the eastern region. Our findings highlight the role of human capital in China's remarkable export performance from an endogenous growth perspective.