High-Skilled Services and Development in China

Lei Fang and Berthold Herrendorf
Working Paper 2019-21
November 2019

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We document that the employment share of high-skill-intensive services is much lower in China than in countries with similar gross domestic product (GDP) per capita. We build a model of structural change with goods and low- and high-skill-intensive services to account for this observation. We find that large distortions limit the size of high-skill-intensive services in China. If they were removed, both high-skill-intensive services and GDP per capita would increase considerably. We document a strong presence of state-owned enterprises in high-skill-intensive services and argue that this presence leads to important distortions.

JEL classification: O41, O47, O51

Key words: mortgage default, foreclosure, externality, policy, vacancy

https://doi.org/10.29338/wp2019-21Off-site link

The authors received useful comments and suggestions from Alex Monge; from the discussants Mark Spiegel, Michael Sposi, Yang Tang, and Wen Yao; from seminar and conference participants at the China International Conference in Macroeconomics (2019, Shenzhen); the Economics-PhD-Reunion Conference (2019, ASU); the Economic Growth and Fluctuations Group of the Barcelona Summer Forum (2019, Barcelona GSE); the Fall Conference on Growth and Human Capital (2019, St. Louis Fed); the Fed System Macro Conference (2019, Dallas Fed); the fourth biennial Conference of China Development Studies (2019, Shanghai); the fourth International Monetary Fund-Atlanta Fed China Workshop (2019, Atlanta Fed); the Midwest Macro Meetings (2019, University of Georgia); Nanjing University; the Society for Economic Dynamics meetings (2019, St. Louis); and the sixth International Annual Conference of New Structural Economics (2019, Peking University). Disclaimer: The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to Lei Fang, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404-498-8057, lei.fang@atl.frb.org, or Berthold Herrendorf, Department of Economics, W.P. Carey School of Business, Arizona State University, 501 E. Orange Street, Tempe, AZ 85287–9801, 480 965 1462, berthold.herrendorf@asu.edu.

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