How does attracting talent strengthen firms? Local talent policies, human resource allocation, and total factor productivity

As the sources of competitive advantage shift from scale expansion toward efficiency-driven growth, the ability of firms to attract and deploy high-skilled labor has become a central determinant of productivity. This paper studies whether and how local talent policies enhance firm-level total factor productivity (TFP). Using the staggered rollout of talent policies across Chinese cities during 2017 to 2019 as a quasi-natural experiment, we estimate a difference-in-differences model on a panel of Chinese listed firms from 2008 to 2023. Talent policy adoption increases firm TFP by approximately 5.3%, an effect that survives a comprehensive battery of robustness checks. We trace this effect to three dimensions of human resource allocation: policies upgrade workforce educational composition, foster collaborative organizational practices, and improve operational efficiency as proxied by asset turnover. The efficiency channel contributes the largest mediation share, indicating that the returns to talent attraction depend more on how firms deploy resources than on headcount expansion alone. Productivity gains concentrate among firms closer to the industry frontier and are largest for firms whose managers lack overseas experience, consistent with the interpretation that policy effects are strongest where pre-existing barriers to talent acquisition are highest. These findings provide micro-level evidence that local talent policies can serve as an effective productivity-enhancing instrument, while highlighting that the transition from attracting talent to realizing productivity gains requires deliberate organizational adaptation within firms.