When Does Skilled Labor Affect the Growth of Secondary Sector Value Added in Emerging Markets?

This study investigates how skilled labor influences the development of the secondary sector in emerging economies, using China as a case study. We focus on the transitional process in which manufacturing growth shifts from labor-intensive expansion toward productivity-driven industrial upgrading. Using provincial-level data from 2000 to 2023, we evaluate the role of skilled labor across different stages of development by applying fixed-effects panel regressions, a difference-in-differences framework, and multiple robustness checks. Our findings reveal that skilled labor does not significantly contribute to secondary sector performance in the early phase, when growth relies primarily on low labor costs and rapid urbanization. However, once regions accumulate sufficient economic capacity and technological readiness, skilled labor becomes an important driver of value added and export performance. Stricter environmental policies further widen regional differences: developed regions benefit from green upgrading supported by skilled workers, while less developed regions face firm exits and weakening industrial output. These results highlight the importance of aligning human capital investments with industrial and environmental policies to promote more balanced and sustainable economic development in emerging markets.