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

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  • Antonio Ciccone
  • Elias Papaioannou

Abstract

Cross-industry cross-country models are applied widely in economics. For example, to investigate the effect of financial development on economic growth or the effect of institutional quality on international trade. The literature estimates the effect of interest by examining the interaction between country characteristics—for example, financial development or institutional quality—and theoretically relevant technological industry characteristics—for example, dependence on external finance or relationship-specific inputs. As the relevant industry characteristics are unobservable for most countries, they are proxied by industry characteristics of a benchmark country. We analyze this approach when there is cross-country heterogeneity in technological industry characteristics. First, we show that the estimation approach in the literature is biased and that the bias cannot be signed if technologically similar countries are similar in terms of other characteristics. Second, we derive necessary and sufficient conditions for identification of the effect of interest. Third, we use the new identification approach to reestimate the impact of institutional quality on comparative advantage in industries that rely on relationship-specific inputs.

Suggested Citation

  • Antonio Ciccone & Elias Papaioannou, 2019. "Estimating Cross-Industry Cross-Country Interaction Models Using Benchmark Industry Characteristics," CRC TR 224 Discussion Paper Series crctr224_2019_088, University of Bonn and University of Mannheim, Germany.
  • Handle: RePEc:bon:boncrc:crctr224_2019_088
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    3. Battisti, Michele & Gatto, Massimo Del & Parmeter, Christopher F., 2022. "Skill-biased technical change and labor market inefficiency," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).
    4. Eddy Bekkers & Michael Landesmann & Indre Macskasi, 2017. "Trade in Services versus Trade in Manufactures: The Relation between the Role of Tacit Knowledge, the Scope for Catch up, and Income Elasticity," wiiw Working Papers 139, The Vienna Institute for International Economic Studies, wiiw.
    5. Léon, Florian, 2020. "The provision of long-term credit and firm growth in developing countries," Economic Modelling, Elsevier, vol. 90(C), pages 66-78.
    6. Beutler, Toni & Grobéty, Mathieu, 2019. "The collateral channel under imperfect debt enforcement," European Economic Review, Elsevier, vol. 111(C), pages 336-359.
    7. Peter S. Eppinger & Katja Neugebauer, 2022. "External financial dependence and firms’ crisis performance across Europe," Empirical Economics, Springer, vol. 62(2), pages 887-904, February.
    8. Kukharskyy, Bohdan, 2020. "A tale of two property rights: Knowledge, physical assets, and multinational firm boundaries," Journal of International Economics, Elsevier, vol. 122(C).
    9. van Hoorn, Andre, 2017. "Social trust, workplace organization, and the comparative advantage of nations," MPRA Paper 80017, University Library of Munich, Germany.
    10. Florian Leon, 2019. "The provision of long-term credit and firm growth," DEM Discussion Paper Series 19-08, Department of Economics at the University of Luxembourg.
    11. van Hoorn, Andre, 2018. "The Political Economy of Automation: Occupational Automatability and Preferences for Redistribution," MPRA Paper 86460, University Library of Munich, Germany.
    12. André van HoornBy, 2017. "Social trust, workplace organization, and the comparative advantage of nations," Oxford Economic Papers, Oxford University Press, vol. 69(4), pages 897-917.
    13. José De Sousa & Amélie Guillin & Julie Lochard & Arthur Silve, 2020. "Trust and Specialization: Evidence from U.S. States," Cahiers de recherche 2010, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.

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    More about this item

    Keywords

    Economic Growth; International Specialization and Trade; Country-Specific Technology; Financial Development; Institutions;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • F10 - International Economics - - Trade - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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