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

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  • Emir Malikov
  • Shunan Zhao

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 between 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 therein 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.

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  • Emir Malikov & Shunan Zhao, 2023. "On the Estimation of Cross-Firm Productivity Spillovers with an Application to FDI," Papers 2302.14602, arXiv.org.
    • Handle: RePEc:arx:papers:2302.14602
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