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Are Apparent Productive Spillovers a Figment of Specification Error?

  • Susanto Basu
  • John G. Fernald

Using data on gross output for two-digit manufacturing industries, we find that an increase in the output of one manufacturing sector has little or no significant effect on the productivity of other sectors. Using value-added data, however, we confirm the results of previous studies which find that output spillovers instead appear large. We provide an explanation for these differences, showing why, with imperfect competition, the use of value-added data leads to a spurious finding of large apparent external effects.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5073.

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Date of creation: Mar 1995
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Publication status: published as Journal of Monetary Economics, vol. 36, pp. 165-188, 1995
Handle: RePEc:nbr:nberwo:5073
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