Spillovers and Path Dependences in the Chinese Manufacturing Industry: A Firm-Level Analysis

In China, numerous policy interventions have been undertaken to promote exports of the manufacturing industry. In this paper, we study how the burgeoning export sector has affected the performance of the manufacturing industry. In particular, we focus our attention on two dimensions: efficiency and technological advancement, and the presence of spillovers and path dependences. The main feature of our empirical study is to distinguish between different types of firms according to their output orientation, ownership, and technology intensity. We also recognize that outputs for domestic use and exports may be produced using different technologies. Our results demonstrate the superiority of multi-output firms in both efficiency and technological advancement. Further, these firms generate strong outgoing spillovers to the industry. In contrast, export-only firms are found to be the most inefficient and technologically underdeveloped, while barely generating outgoing spillovers. In terms of efficiency and technological advancement, we also find that foreign- and privately-owned firms and high-tech firms are the best performers. Finally, we find evidence of strong path dependence and weak absorptive capacities for incoming spillovers in the manufacturing industry. We give targeted policy recommendations based on these findings.