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Policy Evaluation and Empirical Growth Research

In: Economic Growth: Sources, Trends, and Cycles

  • Steven Durlauf

    (National Bureau of Economic Research)

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).

(This abstract was borrowed from another version of this item.)

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This chapter was published in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Economic Growth: Sources, Trends, and Cycles, , chapter 6, pages 163-190, 2002.
This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v06c06pp163-190.
Handle: RePEc:chb:bcchsb:v06c06pp163-190
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  1. repec:att:wimass:9419 is not listed on IDEAS
  2. Carmen Fernandez & Eduardo Ley & Mark F J Steel, 1998. "Benchmark priors for Bayesian model averaging," ESE Discussion Papers 26, Edinburgh School of Economics, University of Edinburgh.
  3. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
  4. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  5. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," CEPR Discussion Papers 1350, C.E.P.R. Discussion Papers.
  6. Easterly, William, 1993. "How much do distortions affect growth?," Journal of Monetary Economics, Elsevier, vol. 32(2), pages 187-212, November.
  7. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  8. Durlauf, S.M. & Johnson, P.A., 1995. "Multiple Regimes and Cross-Country Growth Behavior," Working papers 9419r, Wisconsin Madison - Social Systems.
  9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  10. Desdoigts, Alain, 1999. " Patterns of Economic Development and the Formation of Clubs," Journal of Economic Growth, Springer, vol. 4(3), pages 305-30, September.
  11. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  12. 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.
  13. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
  14. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  15. Chamberlain, Gary, 2000. "Econometrics and decision theory," Journal of Econometrics, Elsevier, vol. 95(2), pages 255-283, April.
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