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

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  • Chatelain, Jean-Bernard
  • Ralf, Kirsten

Abstract

In multiple regressions, 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 which are unfortunately �"outliers driven" and 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 University Library of Munich, Germany in its series MPRA Paper with number 42533.

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Date of creation: 08 Nov 2012
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Handle: RePEc:pra:mprapa:42533

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Keywords: Near-Multicollinearity; Student t-Statistic; Spurious regressions; Ceteris paribus; Parameter In�flation Factor; Growth; Foreign Aid;

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  1. 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.
  2. Hoover,Kevin D., 2001. "Causality in Macroeconomics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521002882.
  3. 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.
  4. 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.
  5. 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.
  6. Jean-Bernard Chatelain, 2010. "Can Statistics Do without Artefacts?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00750495, HAL.
  7. 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.
  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. T. D. Stanley, 2005. "Beyond Publication Bias," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 19(3), pages 309-345, 07.
  10. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 847-868, September.
  11. repec:hal:wpaper:hal-00750495 is not listed on IDEAS
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Cited by:
  1. Karim Azizi & Nicolas Canry & Jean-Bernard Chatelain & Bruno Tinel, 2013. "Government Solvency, Austerity and Fiscal Consolidation in the OECD: A Keynesian Appraisal of Transversality and No Ponzi Game Conditions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00825446, HAL.
  2. 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.
  3. repec:hal:journl:halshs-00674011 is not listed on IDEAS
  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:wpaper:hal-00818474 is not listed on IDEAS
  7. repec:hal:journl:halshs-00706777 is not listed on IDEAS
  8. Chatelain, Jean-Bernard, 2010. "Can statistics do without artefacts?," MPRA Paper 42867, University Library of Munich, Germany.
  9. repec:hal:wpaper:hal-00750495 is not listed on IDEAS

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