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On the Estimation of Cross-Firm Productivity Spillovers with an Application to FDI

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  • Emir Malikov

    (University of Nevada, Las Vegas)

  • Shunan Zhao

    (Oakland University)

Abstract

We develop a novel methodology for the proxy variable identification of firm productivity in the presence of productivity-modifying learning and spillovers, which facilitates a unified internally consistent analysis of the spillover effects among firms. Contrary to the popular two-step empirical approach, ours does not postulate contradictory assumptions about firm productivity across the estimation steps. Instead, we explicitly accommodate cross-sectional dependence in productivity induced by spillovers, which facilitates identification of both the productivity and spillover effects simultaneously. We apply our model to study cross-firm spillovers in China's electric machinery manufacturing, with a particular focus on productivity effects of inbound FDI.

Suggested Citation

  • Emir Malikov & Shunan Zhao, 2023. "On the Estimation of Cross-Firm Productivity Spillovers with an Application to FDI," The Review of Economics and Statistics, MIT Press, vol. 105(5), pages 1207-1223, September.
    • Handle: RePEc:tpr:restat:v:105:y:2023:i:5:p:1207-1223
    DOI: 10.1162/rest_a_01080
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