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Nonlinearities in Cross-Country Growth Regressions: A Bayesian Averaging of Thresholds (BAT) Approach

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  • Doppelhofer, G.
  • Cuaresma, J.C.

Abstract

We propose a Bayesian Averaging of Thresholds (BAT) approach for assessing the existence and quantifying the effect of threshold effects in cross- country growth regressions in the presence of model uncertainty. The BAT method extends the Bayesian Averaging of Classical Estimates (BACE) approach proposed by Sala-i-Martin, Doppelhofer, and Miller (2004) by allowing for uncertainty over nonlinear threshold effects. We apply our method to a set of determinants of long-term economic growth in a cross section of 88 countries. Our results suggest that when model uncertainty is taken into account there is no evidence for robust threshold effects caused by the Initial Income, measured by GDP per capita in 1960, but that the Number of Years an Economy Has Been Open is an important source of nonlinear effects on growth.

Suggested Citation

  • Doppelhofer, G. & Cuaresma, J.C., 2007. "Nonlinearities in Cross-Country Growth Regressions: A Bayesian Averaging of Thresholds (BAT) Approach," Cambridge Working Papers in Economics 0706, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:0706
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    More about this item

    Keywords

    Model Uncertainty; Model Averaging; Threshold Estimation; Non-Linearities; Determinants of Economic Growth;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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