Interdependencies of US manufacturing sectoral TFPs: A spatial VAR approach

This paper examines sectoral interdependencies which is a key empirical premise to models that shun aggregate shocks as a source of business fluctuations. Using a very disaggregated database, it investigates the joint evolution of sectoral US manufacturing total factor productivity (TFP) using a semi-parametric spatial vector autoregressive framework. In this approach the interrelationship between sectors is a function on the “economic distance” between them. This distance is computed either from factor input shares or from input-output tables. It is found that sectoral TFP growth rates move independently from each other and that there is little evidence of complementarities or spillovers across sectors. This conclusion must be qualified for specific subsets of sectors.