Provincial Factor Inputs and Economic Growth in China: Evidence from Panel Granger Non-Causality Tests

Abstract

This study examines the causal relationships between economic growth and factor inputs, namely physical capital, labour, human capital, and research and development in China’s top six economic powerhouses, including Guangdong, Jiangsu, Shandong, Zhejiang, Henan and Sichuan provinces with annual data over the period from 1996 to 2022 with Dumitrescu and Hurlin (2012) and Juodis et al. (2021) Granger non-causality tests. Both Dumitrescu and Hurlin (2012) and Juodis et al. (2021) test suggest that there are causal relationships from physical capital, labour, human capital, and R&D to economic growth. Additionally, the observed bidirectional causality, in some instances, highlights the dynamic interaction between factor inputs and economic performance. The implication of the findings is that (i) the identification of factor inputs such as physical capital, labour, human capital, and research and development causation may help policymakers infer precise economic growth by identifying the correct causation of factor inputs; (ii) identifying the correct causality can provide valuable insights for policymakers aiming to make optimal decision-making on resource allocation to enhance long term economic performance.