NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Antonio Ciccone, Elias Papaioannou

NBER Working Paper No. 22368
Issued in June 2016
NBER Program(s):CF, EFG, IFM, ITI, POL, TWP

Empirical cross-industry cross-country models are applied widely in economics, for example to investigate the determinants of economic growth or international trade. Estimation generally relies on US proxies for unobservable technological industry characteristics, for example industries' dependence on external finance or relationship-specific inputs. We examine the properties of the estimator and find that estimates can be biased towards zero (attenuated) or away from zero (amplified), depending on how technological similarity with the US covaries with other country characteristics. We also develop an alternative estimator that yields a lower bound on the true effect in cross-industry cross-country models of comparative advantage.

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Document Object Identifier (DOI): 10.3386/w22368

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