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A Monte Carlo Study of Growth Regressions

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Author Info
William R. Hauk
Romain Wacziarg

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Abstract

Using Monte Carlo simulations, this paper evaluates the bias properties of common estimators used in growth regressions derived from the Solow model. We explicitly allow for measurement error in the right-hand side variables, as well as country-specific effects that are correlated with the regressors. Our results suggest that using an OLS estimator applied to a single cross-section of variables averaged over time (the between estimator) performs best in terms of the extent of bias on each of the estimated coefficients. The fixed-effects estimator and the Arellano-Bond estimator greatly overstate the speed of convergence under a wide variety of assumptions concerning the type and extent of measurement error, while between understates it somewhat. Finally, fixed effects and Arellano-Bond bias towards zero the slope estimates on the human and physical capital accumulation variables.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0296.

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Date of creation: Jan 2004
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Handle: RePEc:nbr:nberte:0296

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Find related papers by JEL classification:
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
O5 - Economic Development, Technological Change, and Growth - - Economywide Country Studies

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  15. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-85, December. [Downloadable!] (restricted)
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  21. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc. [Downloadable!]
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  23. Delano Villanueva & Malcolm D. Knight & Norman Loayza, 1992. "Testing the Neoclassical Theory of Economic Growth - A Panel Data Approach," IMF Working Papers 92/106, International Monetary Fund.
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  25. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May. [Downloadable!] (restricted)
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  27. Wansbeek, Tom, 2001. "GMM estimation in panel data models with measurement error," Journal of Econometrics, Elsevier, vol. 104(2), pages 259-268, September. [Downloadable!] (restricted)
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