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

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  • Antonio Ciccone
  • Elias Papaioannou

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 amplication 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.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 504.

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Date of creation: Sep 2010
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Handle: RePEc:bge:wpaper:504

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Citations

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Cited by:
  1. Shen, Leilei, 2013. "Financial dependence and growth: Diminishing returns to improvement in financial development," Economics Letters, Elsevier, vol. 120(2), pages 215-219.
  2. Beck, Thorsten & Demirgüç-Kunt, Asli & Singer, Dorothe, 2013. "Is Small Beautiful? Financial Structure, Size and Access to Finance," World Development, Elsevier, vol. 52(C), pages 19-33.
  3. Fafchamps, Marcel & Schündeln, Matthias, 2013. "Local financial development and firm performance: Evidence from Morocco," Journal of Development Economics, Elsevier, vol. 103(C), pages 15-28.
  4. Bassanini, Andrea & Garnero, Andrea, 2012. "Dismissal Protection and Worker Flows in OECD Countries: Evidence from Cross-country/Cross-industry Data," CEPREMAP Working Papers (Docweb) 1211, CEPREMAP.
  5. Haltiwanger, John & Scarpetta, Stefano & Schweiger, Helena, 2014. "Cross country differences in job reallocation: The role of industry, firm size and regulations," Labour Economics, Elsevier, vol. 26(C), pages 11-25.
  6. Nathan Nunn & Daniel Trefler, 2013. "Domestic Institutions as a Source of Comparative Advantage," NBER Working Papers 18851, National Bureau of Economic Research, Inc.

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