| Abstract | This paper builds an endogenous economic growth model, in which talent is allocated between public sector and private sector, to study how talent allocation impacts economic growth in China. On the one hand, talent who is in public sector (civil servants) provides public service to private sector to stimulate economic growth. On the other hand, with the increase of civil servants, talent devoted to innovation in private sector decreases, hence stifling economic growth. Accordingly, the relationship between the number of civil servants and the economic growth in China is an inverted U shape. In order to maximize their utilities, civil servants are likely to enforce inefficient institution, expanding public sector, which prevents China from jumping out of Middle-income trap. Moreover, our simulation results show that the conclusions also hold in transitional dynamics. Finally, we put forward some policy implications. |