Effects of knowledge capital on total factor productivity in China: A spatial econometric perspective

•We estimate the impact of knowledge capital on total factor productivity (TFP) in China.•We use a Spatial Durbin Model for empirical testing with panel data on 29 Chinese regions for 1988-2007.•Results indicate a shift of Chinese productivity growth to a more knowledge based one.•This shift is also based on inter-regional knowledge spillovers.

The transformation of China into a knowledge based economy is one of the most intensively debated research issues in Economic Geography. The focus of this study is on effects of knowledge capital on manufacturing total factor productivity (TFP) in China through the lens of the regional knowledge capital model (KCM). The objective is to estimate the impact of region-internal and region-external knowledge capital - measured in terms of patents granted by the Chinese patent office - on TFP across Chinese regions. We derive a Spatial Durbin Model (SDM) for empirical testing, using panel data on 29 Chinese regions for the years 1988-2007. The results indeed point to a shift of Chinese productivity growth to a more knowledge based one, statistically confirming the impact of knowledge capital on regional TFP after 1998. Furthermore, this shift is not only based on region-internal knowledge capital, but also on inter-regional knowledge spillovers.