Two-way Fixed Effects Panel and Robustness Testing Model on Regional Economic Convergence

Abstract

Which functional mechanism will be more appropriate for regional economic growth in China's economy? this thesis conducts theoretical analysis concerned the functional mechanism conducts empirical test on the various effects of human capital based on the two-way fixed effects panel model and carries out robustness testing based on panel quantile regression. It is found that the direct effects of human capital outweigh its indirect effects with opposite signs, and it is mainly attributed to the poor matching of the technology introduced in the channel of domestic and international technology. There have been abundant theories and assumptions about the effects of human capital on economic growth in the international research field. Nelson (2005) divided the relevant theories into two theoretical systems: accumulation theories and assimilation theories. Accumulation theories deal with the direct influences of human capital on economic growth, which involve the direct input of human capital into the production of end products as a factor of production and assume the contributory role of new human capital in economic growth. This is an exploration of the flow effect of human capital, with the empirical test generally based on the MRW (1992) growth regression framework. While assimilation theories is a theoretical mechanism where human capital exerts indirect effects on economic growth through total factor productivity or technological advances and they emphasize the indirect effects of human capital stock on economic growth, with the empirical tests generally based on the growth regression framework of Benhabib and Spiegel (1994). And the above two kinds of the functional mechanism of human capital can also be called growth effects and level effects (Dowrick, 2003). Besides, the internal mechanism of level effects can be further extended, that is, the influences on technological advances through innovation and technology spillover. And from the perspective of regional level, the source of technology spillover largely contain the source of domestic technology spillover and the source of international technology spillover (Kuo and Yang, 2008; Zhang and Sun, 2012). In addition, human capital can also affect economic growth indirectly through its complementarity with the physical capital. So it can be found that human capital can influence economic growth through various and varied functional mechanisms. But for China's regional economy, which functional mechanism will be more appropriate to account for the facts of different regional economic growth in the current period? In response to this question, this thesis conducts theoretical analysis concerned the functional mechanism of human capital on regional