# **2. Data and descriptive statistics**

Our empirical analysis rests on industry‐specific and country‐specific data, spreading over 2002‐ 2010 and including 23 manufacturing sectors in five GCC countries. These are: Bahrain, Kuwait, Oman, Qatar and Saudi Arabia. The United Arab Emirates are left out because of the lack of industry‐specific data. Data on our dependent variable (annual growth in value added) come from the Industrial Statistics Database of the United Nations Industrial Development Organization (UNIDO). The manufacturing sectors are classified as two‐digit ISIC codes, which is the only available for our sample of countries. Value added data are deflated using the CPI indexes from the World Bank World Development Indicators. The variable _share in value added_ represents the value added of each sector as a percentage of the total valued added of the manufacturing sector in an economy in each year.

As a measure of external finance dependence for each industry, we use data from Rajan and Zingales (1998), in line with similar studies (Cetorelli and Gambera, 2001; Claessens and Laeven, 2005; Dell’Ariccia et al., 2008; Liu et al., 2014). Rajan and Zingales (1998) define external finance dependence as the fraction of capital expenditures not financed by cash flows from operations. The figures are based on US manufacturing firm‐level data during the 1980s. An important assumption underlying our approach is therefore that external finance dependence reflects technological features of an industry that are stable across time and space. Capital markets in the US are among the most advanced in the world, and firms face the least frictions in accessing finance. This suggests a valid and exogenous way to identify the extent of an industry’s external dependence elsewhere in the world. Thus, the degree of US firms’ dependence on external finance is good proxy for the demand of external funds on other countries (see Rajan and Zingales, 1998).<sup>1</sup> One potential criticism to this as well as to similar studies is that our results are driven by the way we measure dependence on external finance. We address this potential criticism in two ways. As a robustness check, we also consider alternative measures of external finance dependence as calculated by Klapper et al. (2006) for the US during 1980‐99, and by Fernandez de Guevara and Maudos (2011) for the UK during 1993‐03. Also in line with similar studies (Cetorelli and Gambera, 2001; Claessens and Laeven, 2005; Fernandez de Guevara and Maudos, 2011; Liu et al., 2014), we include a proxy of financial depth, i.e. domestic credit to GDP, taken from the World Development Indicators.

As for our measures of market power, we employ both structural and more direct indicators of bank market power. The former include the widely used five‐ and three‐bank concentration ratio, estimated as the share of total assets held by the five and three largest banks, respectively. These measures help us test the validity of the structure‐conduct‐performance paradigm (SCP), which assumes a causal relationship among the structure of the banking industry, firm conduct and performance. This paradigm suggests that fewer and larger firms are more likely to engage in anti‐competitive behavior, and therefore higher values of concentration signal greater market power.

> 1 For a critique of this approach see Von Fustenberg and Von Kalckreuth, 2006.

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