Measuring Productivity Growth and Technology Spillovers through Global Value Chains: An Application to a US-Sino Decoupling

This paper estimates heterogeneous productivity growth and spatial spillovers through industrial linkages in the US and China from 1981 to 2010. We employ a spatial Durbin stochastic frontier model and estimates with a spatial weight matrix based on inter-country input-output linkages to describe the spatial interdependencies in technology. We estimate productivity growth and spillovers at the industry level using the World KLEMS database. The spillovers of factor inputs and productivity growth are decomposed into domestic and international effects. Most of the spillover effects are found to be significant and the spillovers of productivity growth offered and received provide detailed information reflecting interdependence of the industries in the global value chain (GVC). We use this model to evaluate the impact of a US-Sino decoupling of trade links based on simulations of four scenarios of the reductions in bilateral intermediate trade. Our estimation results and our simulations are as mentioned based on date that ends in 2010, as this is the only KLEMS data available for these countries at this level of industrial disaggregation. As the GVC linkages between the US and China have expanded since the end of our sample period our results can be viewed as informative in their own right for this period as well as possible lower bounds on the extent of the spillovers generated by an expanding GVC.