Openness, Human Capital, and Productivity Growth in the Chinese Regions

Abstract

The study in this chapter empirically examines the effects of openness and human capital on total factor productivity growth in the Chinese regions. In this chapter we build models of technology diffusion in which follower economies achieve productivity growth by taking advantage of technological spillovers from the world technology frontier. We hypothesize that China’s regional productivity growth is a positive function of regional openness and regional human capital, and a negative function of the current level of regional productivity. By applying panel data fixed effects and GMM regression methods, our analysis shows that human capital has both a growth effect and a convergence effect on regional total factor productivity across the Chinese regions. This result implies that besides its direct, static level effect on output as an accumulable factor input, human capital also exerts indirect, dynamic impacts on output through its growth and convergence effects on total factor productivity. Our analysis also shows that regional openness has a growth effect on regional total factor productivity in China.