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Policy Evaluation and Empirical Growth Research

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Author Info
Steven N. Durlauf

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Abstract

This paper provides a critique of the use of growth regressions to derive policy implications. The author challenges the conventional interpretation of empirical results, arguing that current econometric practice has yielded a body of evidence that is not policy relevant. Extending his own previous work, the author raises two issues of critical importance for policy purposes. First, policy recommendations arising from growth regressions are usually based on the statistical significance of some regression coefficients, which does not necessarily constitute a valid evaluation of alternative policy trajectories. Moreover, the statistical significance of a parameter does not provide information on the relative merit of it for policymakers’ objectives. Second, growth regressions as conventionally constructed do not provide credible evidence of economic structure. Consequently, policymakers are unable to make better decisions based only on regression results. The author proposes an alternative approach to the interpretation of growth regression based on Bayesian averaging techniques, which allow the weighing of different growth determinants relative to the pay-off function of the policymaker and in the context of model uncertainty (because the modeler does not know what growth determinants must be included in a model or what forms of country-level heterogeneity need to be accounted for in the model).

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 205.

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Date of creation: Mar 2003
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Handle: RePEc:chb:bcchwp:205

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  4. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December. [Downloadable!] (restricted)
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  6. Easterly, William & DEC, 1993. "How much do distortions affect growth?," Policy Research Working Paper Series 1215, The World Bank. [Downloadable!]
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  7. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
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  8. Chamberlain, Gary, 2000. "Econometrics and decision theory," Journal of Econometrics, Elsevier, vol. 95(2), pages 255-283, April. [Downloadable!] (restricted)
  9. Robert J. Barro & Jong-Wha Lee, 1993. "International Comparisons of Educational Attainment," NBER Working Papers 4349, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (Bace) Approach," OECD Economics Department Working Papers 266, OECD, Economics Department. [Downloadable!]
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  11. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May. [Downloadable!] (restricted)
  12. Temple, Jonathan, 2000. "Growth Regressions and What the Textbooks Don't Tell You," Bulletin of Economic Research, Blackwell Publishing, vol. 52(3), pages 181-205, July.
  13. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  14. Desdoigts, Alain, 1999. " Patterns of Economic Development and the Formation of Clubs," Journal of Economic Growth, Springer, vol. 4(3), pages 305-30, September. [Downloadable!] (restricted)
  15. Carmen Fernandez & E Ley & Mark F J Steel, 2004. "Benchmark priors for Bayesian models averaging," ESE Discussion Papers 66, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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  16. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308 Elsevier. [Downloadable!] (restricted)
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  17. Durlauf, Steven N. & Kourtellos, Andros & Minkin, Artur, 2001. "The local Solow growth model," European Economic Review, Elsevier, vol. 45(4-6), pages 928-940, May. [Downloadable!] (restricted)
  18. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June. [Downloadable!] (restricted)
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  19. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Harrison, Ann, 1991. "Openness and growth : a time series, cross-country analysis for developing countries," Policy Research Working Paper Series 809, The World Bank. [Downloadable!]
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  21. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May. [Downloadable!] (restricted)
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  22. repec:att:wimass:1920010 is not listed on IDEAS
  23. repec:att:wimass:199419r is not listed on IDEAS
  24. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, vol. 87(2), pages 178-83, May. [Downloadable!] (restricted)
  25. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September. [Downloadable!] (restricted)
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  26. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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