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

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  • Ciccone, Antonio
  • Papaioannou, Elias

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.

Suggested Citation

  • Ciccone, Antonio & Papaioannou, Elias, 2010. "Estimating Cross-Industry Cross-Country Models Using Benchmark Industry Characteristics," CEPR Discussion Papers 8056, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8056
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    More about this item

    Keywords

    Amplification Bias; Industry-Country Models;

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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