How do imports drive the domestic value added of China? The roles of input imports and demand imports

Abstract A comprehensive exploration into the effects of imports on China's economic growth is crucial for coping with fluctuating import dependency shocks. This paper proposes an integrated domestic value added accounting framework incorporating the roles of imports, that is input imports and demand imports and then employs the chaining structural decomposition analysis (SDA), the international geographic decomposition method, and the domestic sectoral decomposition models to further evaluate how imports affected the formations and changes in domestic value added by final demand category. Using the input–output tables from the ADB database, we find that, at the aggregate level, the input import effect fluctuates more significantly than the demand import effect, and its changing trend shows an opposite relationship with that of import dependency. At the sectoral level, input import changes that impact domestic economic growth from the supply and demand side are mainly attributed to the transmission of critical downstream and upstream sectors along industry chains. The governments should thus focus their attention on industry linkages to guarantee the security and resilience of critical domestic supply chains. The sectoral demand import effect shows the importance of improving local supply for people's essential life requirements and upgrading the domestic industry chains of some knowledge‐intensive sectors.