Abstract
The aim of the paper is to study the impact of human capital and R&D on Total Factor Productivity (TFP) from a nonlinear perspective. In the spirit of the theory of innovation-driven growth and models with thresholds in human capital and low-growth equilibria, we hypothesize that the impact of human capital and R&D on TFP is nonlinear. We also make an attempt to explain complementarities between R&D expenditures and human capital, applying developments in the R&D-based growth models. We use spatial panel data models to estimate the link among R&D, human capital, and TFP across the European regions between 2009 and 2014. Empirical evidence shows that there are decreasing returns to human capital and R&D in the European regional space. Moreover, R&D and human capital turn out to be strategic complements. Finally, regional TFP is found to be positively affected by TFP of neighboring regions.
Highlights
The economic performance of regions has drawn much attention from scholars and becomes a primary policy issue [1]
As far as the determinants of total factor productivity (TFP) at the regional level are taken into account, many studies analyze the role played by R&D and human capital contribution to cross-regional productivity differentials and growth [4,5,6]
Human capital affects the level of capacity of technological activities and the ability of the region to absorb the inventions discovered in other regions
Summary
The economic performance of regions has drawn much attention from scholars and becomes a primary policy issue [1]. TFP, measured as a ratio of aggregated outputs and aggregated inputs, has an advantage over labour productivity, which is the most frequently used proxy for regional performance in empirical analyses [2,3]. This results from the fact that TFP captures productivity conditional on the combination of different production inputs and is directly attributable to innovation and technological progress. We extend our analyses by incorporating the spatial dimension of knowledge spillovers into our empirical model It gives a new insight into the role of geography in explaining regional TFP differences. Part 4 shows empirical findings and discussion, and Section 5 concludes and indicates directions for future research
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