Estimating Cross-Industry Cross-Country Models Using Benchmark Industry Characteristics

39 Pages Posted: 22 Nov 2010

See all articles by Antonio Ciccone

Antonio Ciccone

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Elias Papaioannou

Dartmouth College - Department of Economics

Date Written: October 2010

Abstract

International industry data permits testing whether the industry-specific impact of cross-country differences in institutions or policies is consistent with economic theory. Empirical implementation requires specifying the industry characteristics that determine impact strength. Most of the literature has been using US proxies of the relevant industry characteristics. We show that using industry characteristics in a benchmark country as a proxy of the relevant industry characteristics can result in an attenuation bias or an amplification bias. We also describe circumstances allowing for an alternative approach that yields consistent estimates. As an application, we reexamine the influential conjecture that financial development facilitates the reallocation of capital from declining to expanding industries.

Keywords: Amplification Bias, Industry-Country Models

JEL Classification: E23, E44, F30, G10, O40

Suggested Citation

Ciccone, Antonio and Papaioannou, Elias, Estimating Cross-Industry Cross-Country Models Using Benchmark Industry Characteristics (October 2010). CEPR Discussion Paper No. DP8056. Available at SSRN: https://ssrn.com/abstract=1711069

Antonio Ciccone (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
+34 93 542 1669 (Phone)
+34 93 542 1746 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Elias Papaioannou

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States

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