The effect of education subsidies on regional economic growth and disparities in China

This paper examines the impact of education subsidies on regional economic growth and the disparities between two Chinese regions, Jiangsu and Liaoning, by simulating their economies in a six-period overlapping generations model in which individuals decide their length of education. This study estimates the long-run growth rates, that is, the steady growth paths of the regional economies based on current education subsidies, and explores their effect on human capital accumulation, namely in terms of economic growth while considering the increase in education subsidies. Because greater government subsidies in education induce individuals to invest in human capital, both regions achieve higher economic growth. Moreover, because of the large differences in productivity between the regions, the growth gap widens with evenly raised education subsidy rates.