This paper assesses intra-sectoral spillovers in total factor productivity (TFP) across Chinese producers in the chemical industry using panel data on 12,552 firms observed over 2004-2006. We specify TFP as a composite of observable factors such as export market participation, foreign as well as public ownership, the extent of accumulated intangible assets, and unobservable components. We introduce spatial spillovers in TFP through contextual effects of observable variables as well as spatial dependence of the disturbances, extending the Hausman and Taylor (1981) estimator to account for spatial correlation in the error term which may be homoskedastic or heteroskedastic.
