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Nonlinearities in cross-country growth regressions: A Bayesian Averaging of Thresholds (BAT) approach

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  • Crespo Cuaresma, Jesus
  • Doppelhofer, Gernot

Abstract

We propose a framework for assessing the existence and quantifying the effect of threshold effects in cross-country growth regressions in the presence of model uncertainty. The method is based on Bayesian model averaging tech- niques and generalizes the Bayesian Averaging of Classical Estimates (BACE) method put forward by Sala-i-Martin, Doppelhofer, and Miller (2004). We ap- ply the method presented in this paper to a set of 21 variables that have been found to be robustly related to economic growth in a cross-section of 88 coun- tries. We find no evidence of robust threshold effects generated by the initial level of GDP per capita. However, we find that the proportion of years a country has been open to trade is an important source of nonlinear effects on economic growth.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 29 (2007)
Issue (Month): 3 (September)
Pages: 541-554

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Handle: RePEc:eee:jmacro:v:29:y:2007:i:3:p:541-554

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Web page: http://www.elsevier.com/locate/inca/622617

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  17. Peter C.B. Phillips, 1990. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends," Cowles Foundation Discussion Papers 950, Cowles Foundation for Research in Economics, Yale University.
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  19. Huang, Ho-Chuan (River) & Chang, Ya-Kai, 2006. "Trade as a threshold variable for multiple regimes: A comment," Economics Letters, Elsevier, vol. 91(3), pages 458-459, June.
  20. Jesús Crespo Cuaresma, 2002. "Some million thresholds: Nonlinearity and cross-country growth regressions," Vienna Economics Papers 0210, University of Vienna, Department of Economics.
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