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Model uncertainty in cross-country growth regressions

  • Carmen Fernandez

    (School of Mathematics and Statistics, University of Saint Andrews, UK)

  • Eduardo Ley

    (IMF Institute, International Monetary Fund, Washington, DC, USA)

  • Mark F. J. Steel

    (Institute of Mathematics and Statistics, University of Kent at Canterbury, UK)

We investigate the issue of model uncertainty in cross-country growth regressions using Bayesian Model Averaging (BMA). We find that the posterior probability is spread widely among many models, suggesting the superiority of BMA over choosing any single model. Out-of-sample predictive results support this claim. In contrast to Levine and Renelt (1992), our results broadly support the more 'optimistic' conclusion of Sala-i-Martin (1997b), namely that some variables are important regressors for explaining cross-country growth patterns. However, care should be taken in the methodology employed. The approach proposed here is firmly grounded in statistical theory and immediately leads to posterior and predictive inference. Copyright © 2001 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 16 (2001)
Issue (Month): 5 ()
Pages: 563-576

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Handle: RePEc:jae:japmet:v:16:y:2001:i:5:p:563-576
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  1. Durlauf,S.N. & Quah,D.T., 1998. "The new empirics of economic growth," Working papers 3, Wisconsin Madison - Social Systems.
  2. Brock,W.A. & Durlauf,S.N., 2000. "Growth economics and reality," Working papers 24, Wisconsin Madison - Social Systems.
  3. Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, vol. 75(3), pages 308-13, June.
  4. Carmen Fernandez & Eduardo Ley & Mark F.J. Steel, 1998. "Benchmark Priors for Bayesian Model Averaging," Econometrics 9804001, EconWPA, revised 31 Jul 1999.
  5. J. Bradford De Long & Lawrence H. Summers, . "Equipment Investment and Economic Growth," J. Bradford De Long's Working Papers _122, University of California at Berkeley, Economics Department.
  6. Smith, M. & Kohn, R., . "Nonparametric Regression using Bayesian Variable Selection," Statistics Working Paper _009, Australian Graduate School of Management.
  7. Siddhartha Chib & Edward Greenberg, 1994. "Markov Chain Monte Carlo Simulation Methods in Econometrics," Econometrics 9408001, EconWPA, revised 24 Oct 1994.
  8. Xavier Sala-i-Martin, 1997. "I just ran four million regressions," Economics Working Papers 201, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  10. repec:cup:etheor:v:12:y:1996:i:3:p:409-31 is not listed on IDEAS
  11. 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.
  12. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  13. Temple, Jonathan, 2000. "Growth Regressions and What the Textbooks Don't Tell You," Bulletin of Economic Research, Wiley Blackwell, vol. 52(3), pages 181-205, July.
  14. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  15. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
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