Study on local government public expenditure and multi-factor productivity in China based on instrument variable model

Based on the conventional C-D Production Function Model, this paper adopted Instrument Variable Model to measure the multifactor productivity growth of 223 cities at prefecture level and above in China, and probed into its relationship with local government public expenditure. It is shown that relationship between total public expenditure of local government and city multifactor productivity growth in China is significantly negative, which does not mean that local government public expenditure in China is inefficient, but because a considerable part of it is put into social security, health and medical care, and other public services. Further research by different productivity levels show that the faster productivity grows, the more deeply market-driven is the economics, the weaker is the negative correlation of local government public expenditure and productivity growth. Science & technology and educational expenditure of local government positively affect multifactor productivity growth in China cities significantly, however in varying degrees.