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Spurious Regressions and Near-Multicollinearity, with an Application to Aid, Policies and Growth

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  • Jean-Bernard Chatelain

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Kirsten Ralf

    ()
    (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)

Abstract

Explanatory variables with simple correlation coefficients with the dependent variable below 0.1 in absolute value (such as aid with economic growth) may have very large and statistically significant estimated parameters in multiple regressions, which are unifortunately "outliers driven" or spurious. This is obtained by including another regressor which is highly correlated with the initial regressor, such as a lag, a square or interaction terms of this regressor. The analysis is applied on the "Botswana outliers driven" Burnside and Dollar [2000] article which found that aid had an effect on growth only for countries achieving "good" macroeconomic policies.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00802579.

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Date of creation: Nov 2012
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Handle: RePEc:hal:cesptp:halshs-00802579

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Related research

Keywords: Near-Multicollinearity; student t-statistic; spurious regressions; Ceteris paribus; classical suppressor; parameter inflation factor; growth; foreign aid;

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  1. Aris Spanos, 2006. "Revisiting the omitted variables argument: Substantive vs. statistical adequacy," Journal of Economic Methodology, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(2), pages 179-218.
  2. Jean-Bernard Chatelain, 2010. "Can Statistics Do without Artefacts?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00750495, HAL.
  3. Hristos Doucouliagos & Martin Paldam, 2010. "Conditional aid effectiveness: A meta-study," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(4), pages 391-410.
  4. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  5. repec:hal:wpaper:hal-00750495 is not listed on IDEAS
  6. Hoover,Kevin D., 2001. "Causality in Macroeconomics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521452175.
  7. T. D. Stanley, 2005. "Beyond Publication Bias," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 19(3), pages 309-345, 07.
  8. Friedman, Lynn & Wall, Melanie, 2005. "Graphical Views of Suppression and Multicollinearity in Multiple Linear Regression," The American Statistician, American Statistical Association, American Statistical Association, vol. 59, pages 127-136, May.
  9. Jean-Bernard Chatelain & Kirsten Ralf, 2010. "Inference on Time-Invariant Variables using Panel Data: A Pre-Test Estimator with an Application to the Returns to Schooling," PSE Working Papers hal-00492039, HAL.
  10. Hristos Doucouliagos & Martin Paldam, 2005. "Aid Effectiveness on Growth. A Meta Study," Economics Working Papers, School of Economics and Management, University of Aarhus 2005-13, School of Economics and Management, University of Aarhus.
  11. Samuel Bazzi & Michael A. Clemens, 2013. "Blunt Instruments: Avoiding Common Pitfalls in Identifying the Causes of Economic Growth," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 152-86, April.
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Cited by:
  1. Jean-Bernard Chatelain & Kirsten Ralf, 2012. "Les liaisons fallacieuses : quasi-colinéarité et « suppresseur classique », aide au développement et croissance," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 12011, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Azizi, Karim & Canry, Nicolas & Chatelain, Jean-Bernard & Tinel, Bruno, 2013. "Government Solvency, Austerity and Fiscal Consolidation in the OECD: A Keynesian Appraisal of Transversality and No Ponzi Game Conditions," MPRA Paper 46519, University Library of Munich, Germany.
  3. Jean-Bernard Chatelain, 2010. "Can Statistics Do without Artefacts?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00750495, HAL.
  4. Jean-Bernard Chatelain & Kirsten Ralf, 2012. "The failure of Financial Macroeconomics and What to Do About It," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 12030, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  5. Ziesemer, Thomas, 2012. "The impact of development aid on education and health: Survey and new evidence from dynamic models," MERIT Working Papers 057, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  6. repec:hal:journl:halshs-00706777 is not listed on IDEAS
  7. repec:hal:wpaper:hal-00750495 is not listed on IDEAS
  8. repec:hal:wpaper:hal-00818474 is not listed on IDEAS
  9. repec:hal:journl:halshs-00674011 is not listed on IDEAS

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