IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Nonlinearities in growth: From evidence to policy

  • Cohen-Cole, Ethan B.
  • Durlauf, Steven N.
  • Rondina, Giacomo

This paper considers the question of how one can translate evidence of nonlinearities and threshold effects in growth into policy recommendations. We argue that the current evidence of these effects, while important in terms of scholarly debates, does not readily lend itself to policy evaluation. The reasons for this are two-fold. First, the existing evidence on nonlinearities is relatively difficult to integrate into a common coherent view. Different models of nonlinearity appear in different papers; these models are often nonnested and do not present a clear alternative to linear growth models. Second, we argue that the econometric evidence of nonlinearities is often developed in ways that do not allow one to examine explicitly the effects of alternative policies on growth. We describe some recent econometric methods that can address these problems. To illustrate the utility of these methods we then study the current debate on the efficacy of aid on growth in developing countries. We find that none of our methods suggests that aid should be given to countries with better policy quality. In fact, when considering robust policies, our results strongly reject the conclusion that aid should be allocated in higher amounts to countries where the policy quality is high.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0164070411000528
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 34 (2012)
Issue (Month): 1 ()
Pages: 42-58

as
in new window

Handle: RePEc:eee:jmacro:v:34:y:2012:i:1:p:42-58
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. S Durlauf & Danny Quah, 1998. "The New Empirics of Economic Growth," CEP Discussion Papers dp0384, Centre for Economic Performance, LSE.
  2. Jesus Crespo Cuaresma & Gernot Doppelhofer, 2006. "Nonlinearities in Cross-Country Growth Regressions: A Bayesian Averaging of Thresholds (BAT) Approach," Vienna Economics Papers 0608, University of Vienna, Department of Economics.
  3. Oecd, 2002. "Aid volume, channels and allocations for poverty reduction," OECD Journal on Development, OECD Publishing, vol. 3(3), pages 33-46.
  4. Papageorgiou, Chris, 2002. "Trade as a threshold variable for multiple regimes," Economics Letters, Elsevier, vol. 77(1), pages 85-91, September.
  5. Raghuram G. Rajan, 2005. "Aid and Growth: What Does The Cross-Country Evidence Really Show?," Working Papers id:54, eSocialSciences.
  6. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  7. William Easterly & Ross Levine & David Roodman, 2004. "Aid, Policies, and Growth: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 774-780, June.
  8. Maasoumi, Esfandiar & Racine, Jeff & Stengos, Thanasis, 2007. "Growth and convergence: A profile of distribution dynamics and mobility," Journal of Econometrics, Elsevier, vol. 136(2), pages 483-508, February.
  9. Kourtellos, Andros & Tan, Chih Ming & Zhang, Xiaobo, 2007. "Is the relationship between aid and economic growth nonlinear?," Journal of Macroeconomics, Elsevier, vol. 29(3), pages 515-540, September.
  10. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-69, July.
  11. Stanley L. Engerman & Kenneth L. Sokoloff, 2005. "Colonialism, Inequality, and Long-Run Paths of Development," NBER Working Papers 11057, National Bureau of Economic Research, Inc.
  12. Liu, Zhenjuan & Stengos, Thanasis, 1999. "Non-linearities in Cross-Country Growth Regressions: A Semiparametric Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 527-38, Sept.-Oct.
  13. Alexei Onatski & James H. Stock, 1999. "Robust monetary policy under model uncertainty in a small model of the U.S. economy," Proceedings, Federal Reserve Bank of San Francisco.
  14. Canova, Fabio, 1999. "Testing for Convergence Clubs in Income per-capita: A Predictive Density Approach," CEPR Discussion Papers 2201, C.E.P.R. Discussion Papers.
  15. Abhijit Banerjee & Esther Duflo & Leigh Linden & Shawn Cole, 2005. "Remedying education: Evidence from two randomized experiments in india," Framed Field Experiments 00122, The Field Experiments Website.
  16. Daron Acemoglu & Simon Johnson & James A. Robinson, 2002. "Reversal Of Fortune: Geography And Institutions In The Making Of The Modern World Income Distribution," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1231-1294, November.
  17. Banerjee, Abhijit V & Duflo, Esther, 2003. " Inequality and Growth: What Can the Data Say?," Journal of Economic Growth, Springer, vol. 8(3), pages 267-99, September.
  18. William Brock & Steven N. Durlauf, 2000. "Interactions-Based Models," NBER Technical Working Papers 0258, National Bureau of Economic Research, Inc.
  19. Howitt, Peter & Mayer-Foulkes, David, 2005. "R&D, Implementation, and Stagnation: A Schumpeterian Theory of Convergence Clubs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 147-77, February.
  20. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  21. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  22. Brock,W.A. & Durlauf,S.N. & West,K.D., 2004. "Model uncertainty and policy evaluation : some theory and empirics," Working papers 19, Wisconsin Madison - Social Systems.
  23. Charles C. Chang & Eduardo Fernández-Arias & Luis Serven, 1998. "Measuring Aid Flows: A New Approach," Research Department Publications 4146, Inter-American Development Bank, Research Department.
  24. Stanley L. Engerman & Kenneth L. Sokoloff, 2003. "Institutional and Non-Institutional Explanations of Economic Differences," NBER Working Papers 9989, National Bureau of Economic Research, Inc.
  25. Daniel J. Henderson, 2010. "A test for multimodality of regression derivatives with application to nonparametric growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(3), pages 458-480.
  26. Eicher, Theo S. & Papageorgiou, Chris & Roehn, Oliver, 2007. "Unraveling the fortunes of the fortunate: An Iterative Bayesian Model Averaging (IBMA) approach," Journal of Macroeconomics, Elsevier, vol. 29(3), pages 494-514, September.
  27. Charles Manski, 2003. "Statistical treatment rules for heterogeneous populations," CeMMAP working papers CWP03/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  28. Cem Ertur & Wilfried Koch, 2005. "Growth, Technological Interdependence and Spatial Externalities - Theory and Evidence," ERSA conference papers ersa05p651, European Regional Science Association.
  29. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  30. Banerjee, Abhijit & Duflo, Esther, 2004. "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program," CEPR Discussion Papers 4681, C.E.P.R. Discussion Papers.
  31. Ann Owen & Julio Videras & Lewis Davis, 2009. "Do all countries follow the same growth process?," Journal of Economic Growth, Springer, vol. 14(4), pages 265-286, December.
  32. 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.
    • 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.
  33. William A. Brock & Steven N. Durlauf & James M. Nason & Giacomo Rondina, 2007. "Simple versus optimal rules as guides to policy," Working Paper 2007-07, Federal Reserve Bank of Atlanta.
  34. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  35. Brock, William A. & Durlauf, Steven N., 2007. "Identification of binary choice models with social interactions," Journal of Econometrics, Elsevier, vol. 140(1), pages 52-75, September.
  36. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
  37. Bernard, Andrew B. & Durlauf, Steven N., 1996. "Interpreting tests of the convergence hypothesis," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 161-173.
  38. Alexei Onatski & Noah Williams, 2003. "Modeling Model Uncertainty," NBER Working Papers 9566, National Bureau of Economic Research, Inc.
  39. Durlauf, S.N. & Johnson, P.A., 1994. "Multiple Regimes and Cross-Country Growth Behavior," Working papers 9419, Wisconsin Madison - Social Systems.
  40. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  41. Azariadis, Costas & Stachurski, John, 2005. "Poverty Traps," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 5 Elsevier.
  42. Giannoni, Marc P., 2002. "Does Model Uncertainty Justify Caution? Robust Optimal Monetary Policy In A Forward-Looking Model," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 111-144, February.
  43. Peter C.B. Phillips & Donggyu Sul, 2004. "The Elusive Empirical Shadow of Growth Convergence," Yale School of Management Working Papers ysm342, Yale School of Management.
  44. Lensink, Robert & White, Howard, 1999. "Are there negative returns to aid?," Research Report 99E60, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  45. Andros Kourtellos, 2002. "Modeling Parameter Heterogeneity in Cross Country Growth Regression Models," University of Cyprus Working Papers in Economics 0212, University of Cyprus Department of Economics.
  46. Raghuram G. Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," NBER Working Papers 11657, National Bureau of Economic Research, Inc.
  47. Marco Alfo & Giovanni Trovato & Robert J. Waldmann, 2008. "Testing for country heterogeneity in growth models using a finite mixture approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(4), pages 487-514.
  48. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  49. Kevin Lee & M. Hashem Pesaran & Ron Smith, 1996. "Growth and Convergence in a Multi-Country Empirical Stochastic Solow Model," Working Papers 9637, Economic Research Forum, revised Dec 1996.
  50. Fiaschi, Davide & Lavezzi, Andrea Mario, 2003. " Distribution Dynamics and Nonlinear Growth," Journal of Economic Growth, Springer, vol. 8(4), pages 379-401, December.
  51. Carmen Fernandez & Eduardo Ley & Mark F. J. Steel, 2001. "Model uncertainty in cross-country growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 563-576.
  52. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  53. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," NBER Working Papers 7750, National Bureau of Economic Research, Inc.
  54. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
  55. Brock,W.A. & Durlauf,S.N. & West,K.D., 2003. "Policy evaluation in uncertain economic environments," Working papers 15, Wisconsin Madison - Social Systems.
  56. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  57. Magnus, Jan R. & Powell, Owen & Prüfer, Patricia, 2010. "A comparison of two model averaging techniques with an application to growth empirics," Journal of Econometrics, Elsevier, vol. 154(2), pages 139-153, February.
  58. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
  59. Levin, Andrew T. & Williams, John C., 2003. "Robust monetary policy with competing reference models," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 945-975, July.
  60. Lars Peter Hansen & Thomas J. Sargent, 2001. "Acknowledging Misspecification in Macroeconomic Theory," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 519-535, July.
  61. Pantelis Kalaitzidakis & Theofanis P. Mamuneas & Thanasis Stengos, 2000. "A non-linear sensitivity analysis of cross-country growth regressions," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 604-617, August.
  62. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers 9127, Wisconsin Madison - Social Systems.
  63. Andros Kourtellos, 2002. "A Projection Pursuit Approach to Cross Country Growth Data," University of Cyprus Working Papers in Economics 0213, University of Cyprus Department of Economics.
  64. Lars Peter Hansen & Thomas J. Sargent, 2007. "Introduction to Robustness," Introductory Chapters, Princeton University Press.
  65. Simeon Djankov & José G. Montalvo & Marta Reynal-Querol, 2005. "The curse of aid," Working Papers 257, Barcelona Graduate School of Economics.
  66. Manski, Charles F., 2007. "Minimax-regret treatment choice with missing outcome data," Journal of Econometrics, Elsevier, vol. 139(1), pages 105-115, July.
  67. Durlauf,S.N. & Kourtellos,A. & Minkin,A., 2000. "The local Solow growth model," Working papers 21, Wisconsin Madison - Social Systems.
  68. H. Siebert, 2007. "Growth Policy," Chapters, in: Elgar Companion to Neo-Schumpeterian Economics, chapter 59 Edward Elgar.
  69. Christopher A. Sims, 2002. "The Role of Models and Probabilities in the Monetary Policy Process," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 1-62.
  70. Winford H. Masanjala & Chris Papageorgiou, 2004. "The Solow model with CES technology: nonlinearities and parameter heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 171-201.
  71. Johnson, Paul A. & Takeyama, Lisa N., 2001. "Initial conditions and economic growth in the US states," European Economic Review, Elsevier, vol. 45(4-6), pages 919-927, May.
  72. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
  73. Craig Burnside & David Dollar, 2004. "Aid, Policies, and Growth: Reply," American Economic Review, American Economic Association, vol. 94(3), pages 781-784, June.
  74. Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March.
  75. Brock,W.A. & Durlauf,S.N., 2004. "Local robustness analysis : theory and application," Working papers 22, Wisconsin Madison - Social Systems.
  76. Desdoigts, Alain, 1999. " Patterns of Economic Development and the Formation of Clubs," Journal of Economic Growth, Springer, vol. 4(3), pages 305-30, September.
  77. Winford H. Masanjala & Chris Papageorgiou, 2008. "Rough and lonely road to prosperity: a reexamination of the sources of growth in Africa using Bayesian model averaging," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 671-682.
  78. Bloom, David E & Canning, David & Sevilla, Jaypee, 2003. " Geography and Poverty Traps," Journal of Economic Growth, Springer, vol. 8(4), pages 355-78, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:34:y:2012:i:1:p:42-58. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.