that our regressions capture that. We thus construct downstream/upstream/same industry measures from several relevant industry characteristics and control for them ( Table 10).

HGF may simply be more prevalent in industries with higher sales growth, and this sales growth, rather than the high growth firms themselves, drives the increased productivity. To investigate this, we calculate aggregate sales for each industry‐county combination between t and t�3 , and create the downstream, upstream, and same industry measures from these. In column (1) of Table 10, we find that controlling for change in sales at the industry level does not change our results significantly – HGF activity itself, rather than sales growth seems to be associated with productivity change.

In columns (2) and (3), we check whether our results are driven by a correlation between the share of globally integrated firms and HGFs. We control for the share of foreign firms in column (2). Note that this is indeed an FDI spillover equation in Javorcik (2004), which was the basis for our HGF measures. Similar to the FDI spillover literature, we find correlations which are consistent with positive backward spillovers – both the downstream measure and the within industry measure are significantly positive. These variables are correlated with HGF share and reduce our point estimate for the downstream HGF measure by two‐thirds, yet the effect remains significant. Interestingly, controlling for FDI share yields a significantly positive estimate for the upstream HGF measure. The positive intra‐industry effect becomes much weaker than in the previous specification. As an additional proxy for internationalization, column (3) controls for the share of exporters. This is, naturally, strongly correlated with FDI share at the industry level, and its inclusion yields very similar results to column (2).

It is also possible that HGFs are simply more prevalent in more innovative or more high‐tech sectors. In column (4) we control for this by the share of innovative firms at the industry‐ level, calculated from the Community Innovation Survey (only available for the whole country, rather than at a geographically disaggregated way). We find stronger productivity growth in industries with more innovative firms and in industries supplying more innovative industries. The regressions yield positive and mostly significant coefficients for the HGF measures, but they are substantially smaller than in the baseline model. Finally, in column (5), we control for the industry’s technology by including the average productivity of the vertically related sectors. This is calculated from our data, hence available at the same level of aggregation as the HGF measures. We find that firms supplied by and supplying industries with more productive firms experience higher productivity growth. The downstream HGF measure again becomes smaller but remains significant.

We find that HGF share in industries is indeed correlated with technology level and international integration. These industry‐level variables explain a significant part of the association between HGF share in vertically related industries and productivity growth, but even conditional on these factors more HGF share seems to be associated with a premium in productivity growth.

# **Table 10 Controlling for other industry characteristics**

(1) (2) (3) (4) (5) **Labor Productivity (3‐year change)**

**Dependent:**

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