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Nonlinearities in growth : from evidence to policy

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  • Cohen-Cole,E.B.
  • Durlauf,S.N.
  • Rondina,G.

    (University of Wisconsin-Madison, Social Systems Research Institute)

Abstract

This paper considers the question of how one can translate evidence of nonlinearities and threshold effects in growth into policy recommendations. We argue that the current evidence of these effects, while important in terms of scholarly debates, does not readily lend itself to policy evaluation. The reasons for this are two-fold. First, the existing evidence on nonlinearities is relatively difficult to integrate into a common coherent view. Different models of nonlinearity appear in different papers; these models are often nonnested and do not present a clear alternative to linear growth models. Second, we argue that the econometric evidence of nonlinearities is often developed in ways that do not allow one to examine explicitly the effects of alternative policies on growth. We describe some recent econometric methods that can address these problems. To illustrate the utility of these methods we then study the current debate on the efficacy of aid on growth in developing countries. We find that none of our methods suggests that aid should be given to countries with better policy quality. In fact, when considering robust policies, our results strongly reject the conclusion that aid should be allocated in higher amounts to countries where the policy quality is high.

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Paper provided by Wisconsin Madison - Social Systems in its series Working papers with number 9.

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Date of creation: 2005
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Handle: RePEc:att:wimass:20059

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Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.

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Cited by:
  1. Andros Kourtelos & Chih Ming Tan & Xiaobo Zhang, 2006. "Is the Relationship Between Aid and Economics Growth Nonlinear?," University of Cyprus Working Papers in Economics 11-2006, University of Cyprus Department of Economics.
  2. Santos, Paulo & Barrett, Christopher B., 2006. "Informal Insurance in the Presence of Poverty Traps: Evidence from Southern Ethiopia," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25487, International Association of Agricultural Economists.
  3. Steven N. Durlauf & Andros Kourtellos & Chih Ming Tan, 2007. "Are any Growth Theories Robust?," University of Cyprus Working Papers in Economics 2-2007, University of Cyprus Department of Economics.
  4. Jetter, Michael & Nikolsko-Rzhevskyy, Alex & Smith, William T., 2013. "The effects of wage volatility on growth," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 93-109.
  5. Aleksandra Parteka & Massimo Tamberi, 2012. "Relative Product Diversification in the Course of Economic Development: Import-Export Analysis," DEGIT Conference Papers c017_056, DEGIT, Dynamics, Economic Growth, and International Trade.
  6. : Daniel J. Henderson & Chris Papageorgiou & Christopher F. Parmeter, 2012. "Who Benefits from Financial Development? New Methods, New Evidence," Working Papers 2013-07, University of Miami, Department of Economics.
  7. Santos, Paulo & Barrett, Christopher B., 2011. "Persistent poverty and informal credit," Journal of Development Economics, Elsevier, vol. 96(2), pages 337-347, November.
  8. Michael Jetter, 2013. "Volatility and Growth: An Explanation for the Disagreement," DOCUMENTOS DE TRABAJO CIEF 010944, UNIVERSIDAD EAFIT.
  9. Edgardo A. Ayala Gaytán & Joana C. Chapa Cantú & Juan D. Murguía Hernández, 2011. "Una reconsideración sobre la convergencia regional en México," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 26(2), pages 217-247.

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