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Policy Evaluation and Empirical Growth Research

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  • Steven N. Durlauf

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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Bibliographic Info

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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  1. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  2. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-69, July.
  3. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  4. Chamberlain, Gary, 2000. "Econometrics and decision theory," Journal of Econometrics, Elsevier, vol. 95(2), pages 255-283, April.
  5. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  6. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
  7. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
  8. Durlauf, Steven N & Johnson, Paul A, 1995. "Multiple Regimes and Cross-Country Growth Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 365-84, Oct.-Dec..
  9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  10. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  11. 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.
  12. Easterly, William & DEC, 1993. "How much do distortions affect growth?," Policy Research Working Paper Series 1215, The World Bank.
  13. Desdoigts, Alain, 1999. " Patterns of Economic Development and the Formation of Clubs," Journal of Economic Growth, Springer, vol. 4(3), pages 305-30, September.
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Cited by:
  1. Bodea, Cristina & Elbadawi, Ibrahim A., 2008. "Political violence and economic growth," Policy Research Working Paper Series 4692, The World Bank.

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