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Policy Evaluation and Empirical Growth Research

In: Economic Growth: Sources, Trends, and Cycles

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  • Steven Durlauf

    (National Bureau of Economic Research)

Abstract

This paper provides a critique of the use of growth regressions to derive policy implications. The author challenges the conventional interpretation of empirical results, arguing that current econometric practice has yielded a body of evidence that is not policy relevant. Extending his own previous work, the author raises two issues of critical importance for policy purposes. First, policy recommendations arising from growth regressions are usually based on the statistical significance of some regression coefficients, which does not necessarily constitute a valid evaluation of alternative policy trajectories. Moreover, the statistical significance of a parameter does not provide information on the relative merit of it for policymakers’ objectives. Second, growth regressions as conventionally constructed do not provide credible evidence of economic structure. Consequently, policymakers are unable to make better decisions based only on regression results. The author proposes an alternative approach to the interpretation of growth regression based on Bayesian averaging techniques, which allow the weighing of different growth determinants relative to the pay-off function of the policymaker and in the context of model uncertainty (because the modeler does not know what growth determinants must be included in a model or what forms of country-level heterogeneity need to be accounted for in the model).
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Suggested Citation

  • Steven Durlauf, 2002. "Policy Evaluation and Empirical Growth Research," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Economic Growth: Sources, Trends, and Cycles, edition 1, volume 6, chapter 6, pages 163-190 Central Bank of Chile.
  • Handle: RePEc:chb:bcchsb:v06c06pp163-190
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    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Easterly, William, 1993. "How much do distortions affect growth?," Journal of Monetary Economics, Elsevier, vol. 32(2), pages 187-212, November.
    3. Chamberlain, Gary, 2000. "Econometrics and decision theory," Journal of Econometrics, Elsevier, vol. 95(2), pages 255-283, April.
    4. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February.
    5. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    6. Desdoigts, Alain, 1999. "Patterns of Economic Development and the Formation of Clubs," Journal of Economic Growth, Springer, vol. 4(3), pages 305-330, September.
    7. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    8. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
    9. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-1069, July.
    10. Durlauf, Steven N & Johnson, Paul A, 1995. "Multiple Regimes and Cross-Country Growth Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 365-384, Oct.-Dec..
    11. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    12. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
    13. Francisco A. Gallego & F. Leonardo Hernández, 2003. "Microeconomic effects of capital controls: The chilean experience during the 1990s," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 225-253.
    14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Giuseppe Di Liddo & Cosimo Magazzino & Francesco Porcelli, 2015. "Decentralization, Growth And Optimal Government Size In The Italian Regional Framework," Working Papers 0115, CREI Università degli Studi Roma Tre, revised 2015.
    2. Seungjoo Lee & Changhui Kang, 2015. "Labor Market Effects of School Ties: Evidence from Graduates of Leveled High Schools in South Korea," Korean Economic Review, Korean Economic Association, vol. 31, pages 199-237.
    3. Stefano Bartolini & Ennio Bilancini, 2007. "The Social Context of the Labor Supply," Department of Economics University of Siena 511, Department of Economics, University of Siena.
    4. Bodea, Cristina & Elbadawi, Ibrahim A., 2008. "Political violence and economic growth," Policy Research Working Paper Series 4692, The World Bank.

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