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, without relying on the industry input-output tables or matching firm-level industrial census data. This paper also proposes a novel way to capture firm-level input-output linkages by matching the custom product codes of importers and exporters. The results confirm that the HSR increases the DVAR through firm linkages by connecting downstream exporters with upstream domestic suppliers. A two-sector model shows that, by improving the probability of exporters connecting with low-communication cost domestic suppliers, the HSR decreases domestic material prices and increases the variety of accessible domestic materials, hence pushing up DVAR.