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We thank the European Commission (Contract 2001-00057, Project no.: SERD-2000-00126) and the College of Europe, Bruges, for supporting this project. We are particularly indebted to Cliff Wymer, who is involved in the follow- up of this project, for helpful assistance, valuable suggestions and for having allowed the utilization of the most recent version of his programs for estimation of panel data systems in continuous time. We also thank Alfonso Arpaia, Anthony Bartzokas, Michael Deppler, Robert Flood, and Joaquim Oliveira for very useful comments. The usual disclaimer applies.
For an application of the same methodology to a trade and growth model at the sectoral level see Padoan (1998).
Business services include also Communication services and Finance and Insurance. These sectors have been chosen as qualitative studies have shown their relevance in the diffusion of technology (for a review see Guerrieri and Meliciani, 2004).
Francois and Reinert (1996) find that income levels are strongly linked to demand by firms for intermediate or producer services.
A more detailed description of data sources is reported at the end of the paper.
Indeed other methods, named structural, are suggested. They refer to a specific function to be estimated that should fit with different distorting effects to be eliminated (such as pure time effect, field effect etc). This method, while more formally appealing in its specification, embeds some strong hypothesis in the definition of the function to be used. For this reason we adopt the fixed approach.
The countries are Austria, Denmark, Germany, Netherlands, Sweden.
Simulations with the non linear model have been carried out through Wymer’s APREDIC program (Wymer 2002).
This term is constant for all i by virtue of the equality constraints imposed on coefficients.