Changing Global Input-Output Linkages and Demand Spillover

Abstract

This paper examines the effects of changing input-output linkages within and across countries in transmitting shocks across countries between 1965 and 2011. We apply the global input-output framework with the time series for the world input-output tables to examine the spillover of shocks to final demand in 23 countries over the last 47 years. We document that the spillover to foreign countries associated with exogenous changes in final demand in domestic economy is about twice as large now as that in 1965. Moreover, demand spillover is even larger when final demand for more open sectors or foreign goods increases, suggesting the importance of sectoral demand composition. Finally, the foreign spillover in the 2008–2009 Great Recession is large due to both input-output structure changes and sectoral composition of demand.