The Mediating Role of Human Capital in the Relationship between Education Expenditure and Science and Technology Innovation: Evidence from China

Abstract

In recent years, China's rapid economic development has been accompanied by an increase in education spending, resulting in the accumulation of human capital. However, there is ongoing debate regarding whether and how education expenditures have fostered innovation in science and technology (S&T). This study uses panel data from 31 Chinese provinces, cities, and autonomous regions from 2006 to 2015 to look at the relationship between education spending, human capital development, and S&T innovation. It seeks to shed light on this problem. Our results reveal that education expenditure has a significant positive impact on S&T innovation, and human capital accumulation plays a mediating role in this relationship. Specifically, an increase in education expenditure can not only enhance the innovation ability of the educated but also strengthen their ability to accept and apply new technologies, leading to the transformation and transmission of knowledge. Furthermore, our study shows that education expenditure has a greater impact on S&T innovation than capital formation. The findings of this study have important policy implications. Given that education expenditure is an effective means of promoting S&T innovation, it is recommended that the Chinese government continue to boost investment in education, enhance the convenience of education consumption, and advance education supply-side reform. Additionally, policymakers should consider the structure of education expenditures and how it affects innovation, as well as the different impacts of household and public expenditures, education consumption, and education investment on the economy. In conclusion, this study provides evidence supporting the important role of education expenditure in fostering S&T innovation in China. By investing in education, China can continue to build its human capital, promote economic development, and advance social progress.