Asymmetry and heterogeneity in inter-industry productivity spillovers

Productivity spillovers between firms are frequently viewed as an important source of firm productivity enhancement. In this study, we focus on vertically linked inter-industry spillovers and examine their two key characteristics: asymmetry between forward (upstream) and backward (downstream) spillovers and heterogeneity among firms in leveraging such spillovers. We estimate productivity of Indian firms using firm-level data and use Input-Output tables to identify vertical linkages at the industry level. Our findings show that productivity spillovers from upstream industries benefit all firms whereas spillovers from downstream industries primarily benefit productive firms. Furthermore, the impact of forward spillovers is higher for firms operating in less competitive industries and lower for foreign firms. These heterogeneous spillover effects are likely to slow convergence in firm productivity, providing additional justification for the persistence of firm-level differences in productivity levels.