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Techniques for dealing with reverse causality between institutions and economic performance

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  • Cingolani, Luciana

    ()
    (UNU-MERIT / MGSOG, Maastricht University)

  • Crombrugghe, Denis de

    ()
    (School of Business and Economics, Maastricht University)

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    Abstract

    This article provides a succinct review of the arguments stressing the mutual relationship between institutions and economic performance, and a scholarly account of some of the most popular econometric strategies used to minimize reversed causality problems in impact estimation. Among the techniques revisited we find the instrumental variables (IV) approach, distributed lags and vector autoregressions (VAR), quasi-experiments, and identification by heteroskedasticity (IH). Ultimately, the review is conceived as a methodological aide to researchers seeking to explore causal relationships through the use of the Institutional Profiles Database (IPD) produced by the Agence Francaise de Developpement (AFD).

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    File URL: http://www.merit.unu.edu/publications/wppdf/2012/wp2012-034.pdf
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    Bibliographic Info

    Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 034.

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    Date of creation: 2012
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    Handle: RePEc:unm:unumer:2012034

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    Related research

    Keywords: Institutions and growth; endogeneity; instrumental variables; dynamic analysis; identification; heteroskedasticity.;

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