Are Apparent Productive Spillovers a Figment of Specification Error?
NBER Working Paper No. 5073 (Also Reprint No. r2201)
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.
Published: Journal of Monetary Economics, vol. 36, pp. 165-188, 1995