Summary:
The fundamental purpose of the financial sector is to serve the real economy. Currently, China's economic development is characterized by a “cold” real economy and a “hot” virtual economy. The financial sector is favored by social elites, while the real sector exhibits a sluggish trend. The mainstream explanation for this disconnect is that human capital has been overallocated to the financial sector, stifling innovation in the real sector and thus leading to a decline in real economic growth. However, given the information asymmetry between creditors and borrowers, increasing human capital in the financial sector also helps eliminate credit contract frictions,and result in credit expansion, which promotes real economic growth. To provide theoretical and practical reference for deepening financial supply-side structural reform and realizing an innovation-driven growth regime, this paper investigates how the allocation of human capital between the financial and real sectors affects real economic growth in China. In theory, the financial sector's human capital has ambiguous effects on real economic growth. On the one hand, it hinders real economic growth through the following channels: (i) crowding out labor and capital in the real sector; (ii) transferring profit from the real sector, weakening entrepreneurship, and reducing the intrinsic incentives of productive activities; and (iii) lowering the overall entrepreneurial ability. On the other hand, it promotes real economic growth through the following channels: (i) strengthening the ability of the financial sector to absorb social deposits via financial product innovation and industrial competition; (ii) alleviating the information asymmetry between creditors and borrowers and accurately identifying the ability of firms to repay loans; and (iii) improving the allocation of credit among firms with different financing constraints. This paper constructs a two-sector growth model consisting of banks and firms to investigate how the financial sector's human capital affects real economic growth. It then tests the model using the 2008 Chinese Economic Census dataset and data from prefecture-level cities from 2003 to 2015. The theoretical analysis shows that there is an inverse U-type relationship between human capital in the financial sector and real economic growth which is driven by capital crowd-in and innovation crowd-out effects. A series of empirical analyses supports the model's predications. In particular, our simple counterfactual calculation suggests that the real economic growth rate will increase by about 0.45% when human capital is efficiently allocated between the financial and real sectors, and the contribution increases as China's economy grows. This paper obtains similar findings using the Chinese Industrial Database over the 2011-2013 period and confirms that the financial sector's human capital increases a firm's access to external financing and reduces capital misallocation among firms. In sum, these findings demonstrate that increasing human capital in the financial sector does not absolutely promote or inhibit real economic growth,suggesting that there is an optimal allocation threshold of human capital between the financial and real sectors. Therefore, to maintain long-term and high-quality economic growth, it is important to optimize human capital allocation. This paper's theoretical analysis and empirical findings have important policy implications. First, because talented employees are drawn to the financial sector for its high salaries, policymakers should improve modes of income distribution. Second, it is essential to restrict the blind expansion of the financial sector and strengthen its functions of providing financial services to the real sector. The “financial sector transfers 1.5 trillion yuan of profits to the real sector” policy implemented in 2020 in response to the COVID-19 epidemic not only helps reduce the financing cost of firms, but may also help to optimize the allocation of human capital. This paper makes three contributions to the literature. First, it is the first to examine how human capital in the financial sector affects China's real economic growth. Other studies focus on the growth effects of the allocation of human capital between rent-seeking and productive sectors, whereas this paper explores the effect of human capital allocation between the financial and real sectors. Second, this paper examines the influence of human capital allocation in the financial sector on real economic growth and the mechanism that underlies this influence. Although there are several related theoretical studies, this paper uses empirical evidence to confirm that the financial sector's human capital is conducive to expanding credit scale. Third, this paper enriches the understanding of the link between financial development and economic growth. Previous studies focus on the scale expansion and structural adjustment of the financial system, whereas this paper adopts the perspective of human capital allocation, which provides a new explanation for the inverse U-type relationship between financial development and economic growth.
刘贯春, 司登奎, 刘芳. 人力资本偏向金融部门如何影响实体经济增长？[J]. 金融研究, 2021, 496(10): 78-97.
LIU Guanchun, SI Dengkui, LIU Fang. Does Human Capital in the Financial Sector Affect Real Economic Growth in China？. Journal of Financial Research, 2021, 496(10): 78-97.
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