Sectoral spillovers across space and time

Abstract

We examine the spillovers from sectoral shocks across sectors, countries, and over time. Using a large cross-country sample from 1995 to 2014 with detailed sectoral information, we show that supply and demand shocks propagate upstream and downstream in the production and distribution network, both domestically and abroad. We estimate substantial domestic sectoral spillovers in our global sample, and find foreign spillovers to be sizeable as well. We document a persistent effect of negative shocks, especially supply shocks coming from the same sector, on a sector's share in aggregate gross value added in a country. We also illustrate our results by quantifying the significant role spillovers played in amplifying the sectoral shocks associated with the COVID-19 pandemic. Our findings have implications for the design of policies with a sectoral dimension, such as the allocation of sector-specific public investment.