Analysing Heterogeneity in Global Production Technology and TFP: The Case of Manufacturing

Eberhardt, Markus and Teal, Francis (2009): Analysing Heterogeneity in Global Production Technology and TFP: The Case of Manufacturing.

Abstract

In this paper we ask how technological differences in manufacturing production across countries can best be modeled when using a standard production function approach. We emphasise the importance of allowing for differences in the impact of observables and unobservables across countries, as well as of data time-series properties. Our novel twostage estimator, similar to the Pesaran (2006) Common Correlated Effects approach, can account for these matters. Empirical results and diagnostic testing provide strong support for technology heterogeneity. Results are supported when we adopt an econometric approach allowing for reverse causality. In the light of these findings the interpretation of regression intercepts as TFP levels collapses and we introduce an alternative measure.

• Item Type: MPRA Paper
• Language: English
• Keywords: Manufacturing Production; Parameter Heterogeneity; Nonstationary Panel Econometrics; Cross-section Dependence
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization ; Manufacturing and Service Industries ; Choice of Technology

References

Abramowitz, M. (1956). Resource and output trend in the United States since 1870. American Economic Review, 46 (2), 5-23.

Arellano, M., & Bond, S. (1991). Some tests of specification for panel data. Review of Economic Studies, 58 (2), 277-297.

Azariadis, C., & Drazen, A. (1990). Threshold externalities in economic development. Quarterly Journal of Economics, 105 (2), 501-26.

Banerjee, A. V., & Newman, A. F. (1993). Occupational Choice and the Process of Development. Journal of Political Economy, 101 (2), 274-98.

Basu, S., & Fernald, J. G. (1995). Are apparent productive spillovers a figment of specification error? Journal of Monetary Economics, 36 (1), 165-188.

Bernard, A. B., & Jones, C. I. (1996). Productivity across industries and countries: Time series theory and evidence. The Review of Economics and Statistics, 78 (1), 135-46.

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87 (1), 115-143.

Bond, S. (2002). Dynamic panel data models: a guide to micro data methods and practice. Portuguese Economic Journal, 1 (2), 141-162.

Bond, S., Leblebicioglu, A., & Schiantarelli, F. (2004). Capital Accumulation and Growth: A New Look at the Empirical Evidence (Economics Papers No. 2004-W08). Economics Group, Nuffield College, University of Oxford.

Bowsher, C. G. (2002). On testing overidentifying restrictions in dynamic panel data models. Economics Letters, 77 (2), 211-220.

Breitung, J., & Pesaran, M. H. (2005). Unit roots and cointegration in panels (Discussion Paper Series 1: Economic Studies No. 2005-42). Deutsche Bundesbank, Research Centre.

Canning, D., & Pedroni, P. (2004). The effect of infrastructure on long run economic growth. (Harvard University, unpublished working paper)

Caselli, F., Esquivel, G., & Lefort, F. (1996). Reopening the convergence debate: A new look at cross-country growth empirics. Journal of Economic Growth, 1 (3), 363-89.

Choi, I. (2007). Nonstationary Panels. In T. C. Mills & K. Patterson (Eds.), Palgrave Handbook of Econometrics (Vol. 1). Basingstoke: Palgrave Macmillan.

Coakley, J., Fuertes, A., & Smith, R. (2001). Small sample properties of panel time-series estimators with I(1) errors. (unpublished working paper)

Coakley, J., Fuertes, A., & Smith, R. (2002). A principle components approach to cross-section dependence in panels. (Unpublished working paper)

Coakley, J., Fuertes, A. M., & Smith, R. (2006). Unobserved heterogeneity in panel time series models. Computational Statistics & Data Analysis, 50 (9), 2361-2380.

Coe, D. T., & Helpman, E. (1995). International R&D spillovers. European Economic Review, 39 (5), 859-887.

Dickey, D., & Fuller, W. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74 (366), 427-431.

Durlauf, S. N. (1993). Nonergodic economic growth. Review of Economic Studies, 60 (2), 349-66.

Durlauf, S. N., & Johnson, P. A. (1995). Multiple regimes and cross-country growth behaviour. Journal of Applied Econometrics, 10 (4), 365-84.

Durlauf, S. N., Kourtellos, A., & Minkin, A. (2001). The local Solow growth model. European Economic Review, 45 (4-6), 928-940.

Engle, R., & Granger, C. (1987). Cointegration and error correction: representations, estimation and testing. Econometrica, 55 (2), 252-276.

Funk, M., & Strauss, J. (2003). Panel tests of stochastic convergence: TFP transmission within manufacturing industries. Economics Letters, 78 (3), 365-371.

Gollin, D. (2002). Getting income shares right. Journal of Political Economy, 110 (2), 458-474.

Granger, C. W. J. (1997). On modelling the long run in applied economics. Economic Journal, 107 (440), 169-77.

Granger, C.W. J., & Newbold, P. (1974). Spurious regressions in econometrics. Journal of Econometrics, 2 (2), 111-120.

Hendry, D. (1995). Dynamic Econometrics. Oxford University Press.

Im, K., Pesaran, M. H., & Shin, Y. (1997). Testing for unit roots in heterogeneous panels. (Discussion Paper, University of Cambridge)

Im, K., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115 (1), 53-74.

Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 65 (1), 9-15.

Kao, C., Chiang, M., & Chen, B. (1999). International R&D spillovers: An application of estimation and inference in panel cointegration. Oxford Bulletin of Economics and Statistics, 61 (Special Issue), 691-709.

Kapetanios, G., Pesaran, M. H., & Yamagata, T. (2006). Panels with nonstationary multifactor error structures (IZA Discussion Papers No. 2243). Institute for the Study of Labor.

Klenow, P. J., & Rodriguez-Clare, A. (1997). Economic growth: A review essay. Journal of Monetary Economics, 40 (3), 597-617.

Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics, 54 (1-3), 159-178.

Larson, D. F., Butzer, R., Mundlak, Y., & Crego, A. (2000). A cross-country database for sector investment and capital. World Bank Economic Review, 14 (2), 371-391.

Lee, K., Pesaran, M. H., & Smith, R. (1997). Growth and convergence in a multi-country empirical stochastic Solow model. Journal of Applied Econometrics, 12 (4), 357-92.

Liu, Z., & Stengos, T. (1999). Non-linearities in Cross-Country Growth Regressions: A Semiparametric Approach. Journal of Applied Econometrics, 14 (5), 527-38.

Maddala, G. (1999). On the use of panel data methods with cross-country data. Annales D’Economie et de Statistique, 55/56, 429-449.

Maddala, G., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61 (Special Issue), 631-652.

Martin, W., & Mitra, D. (2002). Productivity Growth and Convergence in Agriculture versus Manufacturing. Economic Development and Cultural Change, 49 (2), 403-422.

Murphy, K. M., Shleifer, A., & Vishny, R. W. (1989). Industrialization and the Big Push. Journal of Political Economy, 97 (5), 1003-26.

Nelson, C. R., & Plosser, C. (1982). Trends and random walks in macroeconomic time series: some evidence and implications. Journal of Monetary Economics, 10 (2), 139-162.

Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61 (Special Issue), 653-670.

Pedroni, P. (2000). Fully modified OLS for heterogeneous cointegrated panels. In B. H. Baltagi (Ed.), Nonstationary panels, cointegration in panels and dynamic panels. Amsterdam: Elsevier.

Pedroni, P. (2007). Social capital, barriers to production and capital shares: implications for the importance of parameter heterogeneity from a nonstationary panel approach. Journal of Applied Econometrics, 22 (2), 429-451.

Pesaran, M. H. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica, 74 (4), 967-1012.

Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22 (2), 265-312.

Pesaran, M. H., & Smith, R. (1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics, 68 (1), 79-113.

Phillips, P., & Moon, H. R. (1999). Linear regression limit theory for nonstationary panel data. Econometrica, 67 (5), 1057-1112.

Phillips, P., & Moon, H. R. (2000). Nonstationary panel data analysis: An overview of some recent developments. Econometric Reviews, 19 (3), 263-286.

Phillips, P., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75 (2), 335-346.

Ryan, K., & Giles, D. (1998). Testing for unit roots with missing observations (Department Discussion Papers No. 9802). Department of Economics, University of Victoria.

Smith, R. P., & Fuertes, A.-M. (2004). Panel Time Series. (cemmap mimeo, April 2004.)

Smith, R. P., & Fuertes, A.-M. (2007). Panel Time Series. (cemmap mimeo, April 2007.)

Söderbom, M., & Teal, F. (2003). Openness and human capital as sources of productivity growth: An empirical investigation (Working Paper Series No. 188). Centre for the Study of African Economies.

Söderbom, M., & Teal, F. (2004). Size and efficiency in African manufacturing firms: evidence from firm-level panel data. Journal of Development Economics, 73 (1), 369-394.

Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70 (1), 65-94.

Solow, R. M. (1970). Growth theory: an exposition. Oxford: Oxford University Press.

Swamy, P. A. V. B. (1970). Efficient inference in a random coefficient regression model. Econometrica, 38 (2), 311-23.

UN. (2004). National accounts statistics: Main aggregates and detailed tables, 1992 (New York: UN Publications Division). United Nations.

UN. (2005). UN Common Statistics 2005 (Online database, New York: UN). United Nations.

UNIDO. (2004). UNIDO Industrial Statistics 2004 (Online database, Vienna: UNIDO). United Nations Industrial Development Organisation.

Wooldridge, J. (2002). Econometric Analysis of Cross Section and Panel Data. Cambridge, Mass: MIT Press.