China has funded an international team of researchers to measure its most abundant resource - human capital. Led by School of Economics Professor Haizheng Li and advised by prominent Harvard economist Dale Jorgenson, the project to develop a human capital index ultimately will inform Chinese national policy, but is already pushing the boundaries of economics research.

"China has become a hot topic in economics research because its emerging economy cannot be explained by traditional market economy theory," explains Li. "It is providing economic scholars a remarkable new path in studying transitional economies."

Human capital measures are also a relatively new area of research for China; the combination of the two areas has brought international interest in Li's work.

"Study of human capital is an important new direction for economics," says Li. "We have been comfortable working with physical capital (e.g.: oil, manufacturing plants), but human capital is also a main influencer of productivity, innovation, and sustainable economic growth. It comprises more than 60 percent of the wealth of most nations "" more than 70 percent of the U.S. national wealth - yet we don't have a unified measure for it."

Li's China index is expected to advance international efforts to build a unified measure that can be applied to other emerging economies and enable comparisons across the global economy. His team has modified an existing mainstream method for measuring human capital "" the Jorgenson-Fraumeni (J-F) approach that was developed by Harvard's Jorgenson and that is being used in Europe and the U.S. Jorgenson's partner on that work, Barbara Fraumeni, has joined Li's project team.

Titled "Human Capital Measurement and China Human Capital Index Construction," the more specific project goal is to measure China's human capital stock during the rapid growth years from 1985-2007. Begun in fall 2008, the project is funded from various sources including the National Natural Science Foundation of China (China's equivalent of the NSF). The index will quantify the distribution and dynamics of China's workforce, capturing such dramatically changing factors as rural to urban migration, higher education, and Chinese cultural factors such as its early retirement age (relative to the U.S.).

Li's team released a preliminary national human capital index of China at an international symposium held in Beijing in October 2009. It was very well received. The working paper based on the preliminary results has appeared in the National Bureau of Economic Research (NBER) working paper series. That national index should be completed in spring 2010, but the extensive work collecting data to support indices for Chinese provinces will extend for another 5-10 years.

Because of their current work and future plans in this area, the Acting Director of the Statistics Directorate of the Organization for Economic Co-operation and Development (OECD), Paul Schreyer, has sent a formal letter to the Chinese government to designate Li's team "as official participant from China" to the OECD Human Capital Consortium.

"We are building the infrastructure for the quantifiable data that will support the construction of human capital indices at a national and province level in China," says Li. "Ultimately, the indices will support ongoing empirical research on the role of human capital in economic growth and development and support policy analysis." It would help quantify, for example, the benefit of China's aggressive investment in higher education relative to its investment in physical resources.