Industry-Specific Productivity and Spatial Spillovers through input-output linkages: evidence from Asia-Pacific Value Chain

This paper develops a theoretical growth model which combines spatial spillovers and productivity growth heterogeneity at the industry-level. We exploit the global value chain (GVC) linkages from inter-country input-output tables to describe the spatial interdependencies in technology. The spillover effects from factor inputs and Hicks-neutral technical change are separately identified in the model and decomposed into domestic and international effects respectively. Country-specific production functions are estimated using a spatial econometric specification for the industries of the sample. Most of the spillover effects of factor inputs, which we measure in terms of external factor elasticities, are found to be statistically and economically significant. The spillover effects of technical change offered and received vary widely across industries and contain information about the technological diffusion in GVC. Most prominently, the spillover of productivity growth offered by US Electrical and Optical Equipment is 5.05%, which is the highest of all industries in our sample. Chinese Electrical and Optical Equipment absorbs the spillover of productivity growth of 1.04% annually, with the international component a relatively low 0.12%, which is substantially smaller than Korea’s absorption of international spillovers that add 0.53% annually to this key industry.