Abstract: This paper investigates the impacts of venture capital investments (VCs) and capital account open on regional total factor productivity (TFP) using the non-parametric covariance matrix estimator on a region-level dataset from 2003 to 2012. Considering the heterogeneity of venture capitalists, we find that the impacts and its dynamics of foreign vs. state-owned vs. private VCs on regional TFP are heterogeneous. In particular, the foreign VCs can significantly boost regional TFP through promoting technological progress, the private VCs can significantly spur regional TFP by improving technical efficiency, while state-owned VCs has no significant impact on regional TFP. Although capital account open policies are significantly associated with high rates of regional TFP growth, it reduces the marginal efficiency of gross VCs on improving regional TFP. The structure and spatial allocation of national venture capital market should be optimized in the future.

Key words: venture capital, capital account opening, total factor productivity, non-parametric covariance matrix estimation technique