Economic environment, technology diffusion, and growth of regional total factor productivity in China

This paper examines the effects of the regional economic environment and technology diffusion on China's regional total factor productivity (TFP) growth. We build a model of TFP growth in which Chinese regions achieve growth in TFP by making use of technology spillovers from the world technology frontier. We hypothesize that given the world frontier level of TFP, China's regional TFP growth is positively related to regional openness and negatively related to the current level of regional TFP. Empirical analysis in this paper of 29 province-level regions in China strongly supports our hypothesis. By using a nonlinear least squares regression method, we show that regional openness has a significantly positive effect on regional TFP growth. As a by-product, we also estimate a value of the output elasticity of capital that conforms to its traditionally accepted values. The findings of this paper lend strong support to the claim that the opening up process of China promotes the country's economic growth.