The China Effect on the Productivity in the US and Other High-Income Countries

From a macroeconomic perspective and using input-output techniques, this paper investigates to what extent, and how, the growing use of intermediates imported from China has contributed to the productivity growth within the manufacturing production processes of 22 high-income countries. Using China’s productivity as the exogenous variation, the main result – based on changes within 400 global value chains during the period 2000-2014 – is that the elasticity is positive and highly significant. With the preferred estimation, a one per cent increase in the use of intermediates imported from China does, on average, lead to an increase in productivity by 0.65 per cent among high-income countries, and by 0.40 per cent in the US. This result holds under different specifications: before and after the financial crisis, including time lags, including the capital stock, and using a different identification strategy. Furthermore, the result holds in almost all manufacturing production processes and in all major country groups. When controlling for the imports of intermediates from China, the exports of intermediates to China have an independent, significant positive effect on the productivity growth in the high-income countries. The positive productivity effect from the growing use of Chinese intermediates is mainly caused by productivity improvements along the supply chains of the manufacturing sector and, hence, not in the final stage of the production process. Despite all this, China does not seem to be special: the positive productivity effect from the growing use of intermediates imported from Eastern Europe is at least equally significant and economically relevant