Industry-Specific Productivity and Spillovers Through Input-Output Linkages: Evidence from Asia-Pacific Value Chain

Global value chains (GVCs) promote the diffusion of knowledge and technology. This paper develops an empirical production model that combines spillovers and productivity growth heterogeneity at the industry-level. We exploit the GVCs linkages from inter-country input-output tables to describe the interdependencies of technology within the input-output space and combine that with the Asian-Pacific and US KLEMS database to estimate productivity growth. The spillover effects from capital deepening, intermediate deepening, and technical change are identified and decomposed into domestic and international effects. Our empirical results find that ignoring the industrial interactions leads to an overestimation of China's productivity growth, and underestimation for the US and Japan. The spillovers of capital and intermediate are found to be significantly positive. The spillovers of technical change received account for 32 to 40 percent of total productivity growth. These findings provide a better understanding of how technical changes are distributed and diffused within GVCs.