Local Governance,Human Capital,and Regional Innovation

Innovation is the main driver of contemporary economic growth,and human capital,as the main source of innovation capacity,plays an indispensable role within a region.In China,there are large variations across regions in terms of human capital endowment,leading to differential capacities of innovation.The literatures have reached a consensus that human capital promotes innovation.In recent years,China's innovation ability has been significantly improved.In addition to human capital investment,the mighty institutional capacities of the Chinese Communist Party in terms of strong organizational power in mobilizing resources and local governance are key factors.However,the existing literature has not yet used rigorous quantitative methods to study the effect of local governance capacity on unleashing the potential of local human capital which eventually contributes to local innovative capacity.A rigorous analysis on the association and causality between local governance capacity and innovation performance is then needed to fill the gap.This thesis examines the relationship among local governance capacity,human capital,and innovation using prefecture-level data from 2008 to 2014.In particular,I use effective inventions to proxy a prefecture city's innovation capacity;the number of R&D staff to proxy the amount of human capital;taking whether the secretary of the municipal party committee graduated from a party school or continued to train at a party school above the level of the provincial party school(including the provincial party school)for more than one year(including one year)as dummy,it indicates whether the improvement of local governance capacity is multiplied by the number of scientific and technical personnel.Using Pooled OLS(Pooled Ordinary Least Square)model to regresses innovation capacity against local governance capacity human capital,and an array of control variables,I show that there is a significant positive association between innovation capacity and human capital.However,the benchmark OLS model suffers from the endogeneity problem.Specifically,there is a simultaneity between human capital and innovation capacity,which may have resulted a spurious two-way causality.To overcome endogenous problems,I introduce the number of jinshi in the Ming and Qing Dynasties at prefecture level which reflects the degree of Confucian culture influence as an instrumental variable(IV)of contemporaneous human capital.This is because historically,Confucianism emphasized education as the main personal attainment and learning for governance has been the essential part of the proactive attitude toward life embedded in Confucianism.Throughout the latter half of the two millennium long imperial history of China,the establishment and maintenance of the imperial examination system(keju)had been closely tied with Confucianism.Such pro-educational effect of Confucian culture is believed to be long lasting as shown by several recent studies.The results of the 2SLS(Two Stage Least Square)model confirmed that the number of jinshi in the Ming and Qing Dynasties,that is,the degree of Confucian culture,had a significant positive impact on the accumulation of modern human capital.Upon overcome of the endogeneity problem,my 2SLS results show that local governance capacity,reflected by the Communist Party School experience of the city's leader,positively contributed to the city's innovation capacity through enhancing the effectiveness of human capital.In the robustness checks,I use the total number of employees with university degree to proxy human capital;the number of published scholarly papers as an alternative measure of innovation capacity,taking whether the mayor graduated from a party school or continued to train at a party school above the level of the provincial party school(including the provincial party school)for more than one year(including one year)as dummy,it indicates whether the improvement of local governance capacity is multiplied by human capital.All previous results hold in my robustness checks.Given the huge regional deferences in China in terms of East-West ladder,I repeat the regressions in three different regions,East,Central,and West.The results confirm that human capital plays a significant role in promoting innovation capacity in the central and eastern regions,and the role of human capital is stronger in areas where the city party secretary has experience in the party school.In the western region,due to the lack of advanced technology and a perfect market mechanism,human capital has a smaller effect on its innovation capabilities than in the eastern and central regions,and the innovation promoting effect of city leader's Party School experience is statistically insignificant in the western region,further research is needed to unravel such a relationship.