The Spillover Effect of Technological Progress Based on Two Sector Model: An Empirical Study of Chinese Manufacturing Sector

As the technology has the nature of public good, industrial technology innovation activities have positive externalities on related sectors. Two-sector model is built to identify and calculate the spillover effects of technological progress. Specifically, the industry is divided into two sectors, and technological progress in one sector is added to the production function of the other to research the relationship between technological progress in one sector and output growth of the other. Panel data constituted by time-series from 2000 to 2007 and cross-section data of 31 provinces in Chinese manufacturing sectors is used for empirical testing. The conclusion is drawn that there are very significant spillover effects from the technological progress in equipment manufacturing sector on non-equipment manufacturing sector. The estimated results of different divisions prove that the production efficiency of equipment manufacturing sector and equipment updating speed of non-equipment manufacturing sector influence the spillover effects.