Global spatial economic interaction: knowledge spillover or technical diffusion?

ABSTRACT

Two sources of economic interaction are knowledge spillover and technical diffusion. This paper proposes a structural model with spatial effect in knowledge spillover and technical diffusion and empirically estimates the sources of economic interaction. The empirical results demonstrate that economic interaction mainly comes from knowledge spillover, and the effect of technical diffusion is weak. These results appeal for special attention to be paid to enhancing the effect of technical diffusion on long-term economic growth. Moreover, the knowledge spillover effect within China is only slightly larger than that in the global setting, implying existence of barriers, particularly institutional impediments, to economic interaction in China. The findings of this paper strongly call for the removal of China’s hukou system and local protectionism, which restrict factor mobility across space.

KEYWORDS:

• economic interaction
• spatial weighting matrix
• knowledge spillover
• technical diffusion
• China

JEL:

• C21
• O33
• O47

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

ORCID

Xun Zhang http://orcid.org/0000-0002-1991-4975

Notes

1 Hukou is a household registration system introduced in 1958 to control rural-to-urban migration in China. At that time, a Chinese citizen was given a rural or an urban hukou. New-born children inherit their hukou status from their mothers. The urban hukou is associated with privileges and entitlements (social security and public services) that the rural citizens cannot enjoy, even today. It has been very hard to alter one’s hukou status. Before the early 1990s, rural citizen could not migrate to cities and towns. More recently, migration has been allowed but the hukou system still discriminates against migrants in terms of educational, medical and other welfare assistances. Therefore, the hukou system hinders economic interaction and spillover effect in China.

2 We have also tried one non-geographical measure of distance using economic distance. The results remain robust. However, since the dependent variable GDP per capita is related to economic growth, using the matrix using economic distance (which is also related to economic growth) may bring in severe endogeneity. Therefore, it seems better to use the geographical measures.

3 See http://siteresources.worldbank.org/DATASTATISTICS/Resources/CLASS.XLS. For space considerations, we only report the results using income categories. The results using geographical categories are available from the authors upon request.

4 Separating OECD and non-OECD economies yields similar results.

5 The income grouping is time invariant as few countries witnessed up- or downgrades across the groups according to our calculations.

6 The data for patent applications and patent grants start from 1999, limiting the time span of our data.

7 Tables A3–A4 in Appendix A in the supplemental data online report estimation results with the technical diffusion effect only. It is clear that once the knowledge spillover factors are omitted, the effect of technical diffusion becomes more significant, suggesting that previous studies suffer from omitted variable biases.

8 In the following section, we only report the results of the robustness check using China’s data. The global empirical results are available from the authors upon request.

9 In Table 4, some coefficients are positive but printed as zero due to rounding.

10 Following Barro and Lee (2001), the number of schooling years for graduates of primary, junior middle and senior middle schools, and of a university are set as six, nine, 12 and 16, respectively.

Additional information

Funding

This paper was funded by the Key Project of National Statistical Research of China [grant number 2017LZ21], the Key Project of the 13th Five-Year Plan of Beijing Education Sciences [grant number 3020-0014], and the National Natural Science Foundation of China [NSF projects numbers 71833003 and 71603026].