The China effect on the productivity in Nordic countries

Using a linear panel data model with a fixed-effect estimator, this article investigates the causal effect of the growing use of Chinese intermediates on the labour productivity growth in Nordic manufacturing production processes. The main result – based on changes within more than 70 global value chains during the period 2000–2014 – is that the effect is positive and economically relevant. This productivity effect exists before and after the financial crisis, in all Nordic countries, and is well-spread among the sub-sectors of the manufacturing industry. The effect is mainly caused by reduced employment, not increased value added. This employment effect appears both in the manufacturing sub-sectors themselves and along their domestic supply chains. Finally, China does not seem to be special: the productivity effect of the growing use of Eastern European intermediates is equally pronounced.