Firm Linkages and Domestic Value Added in Exports : Moving up the Global Value Chains with High-Speed Railways

Since 2000, China has been upgrading its infrastructure, exemplified by the expansion of the high-speed railways (HSR), while simultaneously moving up the global value chains, evidenced by the rising domestic value-added ratio (DVAR) in exports. To analyze the impacts of the HSR on China's DVAR, this paper develops a new methodology to estimate firm-level DVAR using only customs transaction data. This paper also proposes a novel way to capture firm-level exporter-supplier input-output linkages by matching the custom product codes of importers and exporters. The results show that HSR can explain 14 percent of the increase in firm DVAR for 2007–2016, as it increases the share of domestic suppliers connected to exporters. A two-sector model with a quantitative analysis shows that HSR improves the probability of exporters connecting with low-communication cost domestic suppliers, leading to lower domestic material prices and higher varieties of accessible domestic materials, hence pushing up firm DVAR.