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Growth, Income and Regulation: a Non-Linear Approach

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Author Info
Tue Gørgens (Department of Economics, University of Copenhagen)
Martin Paldam (Department of Economics, University of Aarhus)
Allan H. Würtz (Department of Economics, University of Copenhagen)

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Abstract

This paper analyzes the effect on GDP growth of income (GDP per capita) and economic regulation. A simple theoretical framework presents two opposing views. We analyze the empirical relation using a non-linear dynamic panel data model with fixed effects. The result shows that the effect of regulation on growth depends on income. For low-income countries, there is little effect of changing regulation. For highly regulated middle-income countries, deregulation can increase growth. For high-income countries, deregulation leads to higher growth. Holding regulation constant, there is catch-up growth with a maximum at an intermediate income level.

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Publisher Info
Paper provided by University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics in its series CAM Working Papers with number 2005-12.

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Length: 19 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:kud:kuieca:2005_12

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Related research
Keywords: catch-up growth; economic freedom; fixed effects; GMM; specification tests;

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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References listed on IDEAS
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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Johnson, Paul & Durlauf, Steven N & Temple, Johnathan R. W., 2004. "Growth Econometrics," Vassar College Department of Economics Working Paper Series 61, Vassar College Department of Economics. [Downloadable!]
    Other versions:
    • Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., 2005. "Growth Econometrics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 8, pages 555-677 Elsevier. [Downloadable!] (restricted)
  3. Robert J. Barro, 1996. "Determinants of Economic Growth: A Cross-Country Empirical Study," NBER Working Papers 5698, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, vol. 73(1), pages 31-43, March. [Downloadable!] (restricted)
    Other versions:
  5. Carlsson, Fredrik & Lundstrom, Susanna, 2002. " Economic Freedom and Growth: Decomposing the Effects," Public Choice, Springer, vol. 112(3-4), pages 335-44, September. [Downloadable!] (restricted)
    Other versions:
  6. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July. [Downloadable!] (restricted)
    Other versions:
  7. repec:att:wimass:1920418 is not listed on IDEAS
  8. Easton, Stephen T & Walker, Michael A, 1997. "Income, Growth, and Economic Freedom," American Economic Review, American Economic Association, vol. 87(2), pages 328-32, May. [Downloadable!] (restricted)
  9. Frank Windmeijer, 2000. "A finite sample correction for the variance of linear two-step GMM estimators," IFS Working Papers W00/19, Institute for Fiscal Studies. [Downloadable!]
  10. Anderson, T. W. & Hsiao, Cheng., 1980. "Estimation of Dynamic Models with Error Components," Working Papers 336, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  11. James D. Gwartney & Robert A. Lawson & Randall G. Holcombe, 1999. "Economic Freedom and the Environment for Economic Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 643-, December.
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