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Investment ratio in growth equations

Author

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  • B. Bhaskara Rao
  • Rup Singh
  • Neelesh Gounder

Abstract

In the cross-country and time series studies on the determinants of the growth rate, capital stock is often proxied with the investment ratio due to lack of reliable data. While investment ratio may give good results with OLS, their robustness is doubtful. In addition there are other problems: (a) investment ratio may be a good proxy for the change in capital stock, but combining it with the level of employment to estimate a production function leads to misspecification bias; (b) it is not possible to impose any valid constraints on the coefficients of these variables and (c) if instrument variables are used to minimize any endogenous variable bias, the equation with the investment ratio seems to be fragile.

Suggested Citation

  • B. Bhaskara Rao & Rup Singh & Neelesh Gounder, 2007. "Investment ratio in growth equations," Applied Economics Letters, Taylor & Francis Journals, vol. 14(8), pages 565-568.
    • Handle: RePEc:taf:apeclt:v:14:y:2007:i:8:p:565-568
    DOI: 10.1080/13504850500461365
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    Cited by:

    1. GUISAN, Maria-Carmen, 2008. "Rates, Ratios And Per Capita Variables In International Models: Analysis Of Investment And Foreign Trade In Oecd Countries," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 5(2).

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