Blunt Instruments: On Establishing the Causes of Economic Growth
AbstractConcern has intensified in recent years that many instrumental variables used in widely-cited growth regressions may be invalid, weak, or both. Attempts to remedy this general problem remain inadequate. We demonstrate that a range of published growth regressions may contain spurious results because of hidden problems with the instrumental variables they use. We urge several steps to surpass these difficulties: grounding of growth regressions in slightly more generalized theoretical models, deployment of the latest methods for estimating sensitivity to violations of exclusion restrictions, opening the black box of GMM with supportive evidence of instrument strength, and utilization of weak-instrument robust tests and estimators.
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Bibliographic InfoPaper provided by Center for Global Development in its series Working Papers with number 171.
Length: 47 pages
Date of creation: May 2009
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Web page: http://www.cgdev.org
IV; instrumental variables; ; 2SLS; two-stage least squares; Generalized Method of Moments; GMM; Blundell-Bond; Arellano-Bond; exclusion restriction; economic growth; regression; weak instruments; valid instruments; overidentification; underidentification; identification problem; growth determinants; foreign aid; institutions; geography; legal origins; too many instruments.;
Find related papers by JEL classification:
- F35 - International Economics - - International Finance - - - Foreign Aid
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-30 (All new papers)
- NEP-DEV-2009-05-30 (Development)
- NEP-ECM-2009-05-30 (Econometrics)
- NEP-FDG-2009-05-30 (Financial Development & Growth)
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