Human Capital And Total Factor Productivity

Neo-classic economic growth theory holds that the long-term economic growth of a country depends on the growth of total factor productivity. Human capital as the carrier of knowledge and technological advancement is the key determinant of TFP and the driving power of developing country realizing economic catch-up. Benhabib and Spiegel (1994,2004) holds that human capital exerts it influence on TFP mainly through two ways:firstly, human capital may directly influence total factor productivity by determining the innovation ability of a country. Secondly, human capital may indirectly improve the TFP by influencing the absorptive ability of international technological spillover. With the deepening of reform and opening up policy since1990s, what is the relationship between the human capital and TFP? Whether does human capital improve the TFP through the two channels or not? These questions are very thought-provoking. Therefore, this paper focuses on the mechanism and effectiveness of how human capital influences the total factor productivity.Based on the theory of Benhabib and Spiegel (1994), this paper discusses the human capital’s direct impact on the TFP and indirect influence on the international technological diffusion. Moreover, through the comparative analysis of two major technological spillover channels (import trade and FDI), the paper thoroughly study the role of human capital played on international technological spillover. The innovations of this paper are mainly as follows: Firstly, the innovations of the research perspective. This paper combines human capital and international technological spillover within the same framework and deeply analyzes the mechanism and effectiveness of how human capital influences the total factor productivity.Secondly, the innovations of the content. This paper set up a systematic analysis framework to study the topic, including the average human capital stock, different levels of human capital and the distribution structure of human capital and point out that the impact of human capital not only has horizontal effect, but also has the structure effect. Thirdly, the innovations of the research methods. This paper uses the fixed effect model and random effect model to study the regional effect and threshold effect of the role of human capital played on the TFP.This paper consists of seven chapters. Chapterl raises the main topic of the paper.Chapter2reviews the theories of human capital and TFP and discuss the channel of how human capital influences the TFP through theoretical models. Chapter3estimates and analyzes the average human capital stock, different level of human capital and inequality of human capital. Chapter4uses Solow residual method to estimate the TFP of China since the reform and opening up policy. Chapter5and6studies the direct and indirect impact of human capital played on TFP through empirical analysis. Chapter7draws the conclusion of this paper. The main findings of this paper are as follows:First, on the national level, average human capital stock has a direct positive effect on the TFP. Different level human capital exerts different impact on TFP, higher education human capital has greatest impact, secondary education human capital lower, primary education human capital the least. Secondly, this paper studies the effects of human capital played on TFP on the provincial level in China. The results show that average human capital stock has significantly positive effects on TFP in each region of China. Higher education human capital only improves the TFP in east China, secondary education human capital increases the TFP in all regions of China and the primary education human capital has no impact on TFP growth. Besides, human capital inequality has a significantly negative effect on TFP in China.Secondly, human capital is an important absorptive factor of technological spillover. On the national level, the average human capital stock promotes the import trade and FDI technological spillover. And the secondary and higher education human capital are the main absobor of international technological spillover, but the primary education human capital seems has no such effect. And human capital inequality has negative effect on the TFP. Secondly, the average human capital only promotes the technological spillover in the east and middle area of China. The higher education human capital has a positive effect on the TFP in the east area of China. The secondary education human capital affects TFP on the three areas of China. The influence of primary education human capital and human capital inequality depends on the spillover channels.Thirdly, there exist the threshold effect of human capital on TFP, and the average human capital stock, higher education and secondary education have positive threshold effect but the primary education human capital has negative threshold effects.Fourthly, there exists heterogeneity of the different technological spillover channels. First of all, FDI has greater technology spillover effect than the import trade. Based on the study, the lower human capital threshold of FDI may be the answer. Secondly, the primary education human capital played a negative effect on the FDI technological spillover, but has no significant effect on the import trade technological spillover. The result shows that improving the quality of FDI is really important in TFP growth in China.