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

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

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.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0706.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0706.

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Length: 29
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:cam:camdae:0706
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Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  7. Winford H. Masanjala & Chris Papageorgiou, 2004. "The Solow model with CES technology: nonlinearities and parameter heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 171-201.
  8. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
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  12. Eicher, Theo S. & Papageorgiou, Chris & Roehn, Oliver, 2007. "Unraveling the fortunes of the fortunate: An Iterative Bayesian Model Averaging (IBMA) approach," Journal of Macroeconomics, Elsevier, vol. 29(3), pages 494-514, September.
  13. Koop, Gary & Potter, Simon M., 1998. "Bayes factors and nonlinearity: Evidence from economic time series1," Journal of Econometrics, Elsevier, vol. 88(2), pages 251-281, November.
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  16. Peter C.B. Phillips, 1990. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends," Cowles Foundation Discussion Papers 950, Cowles Foundation for Research in Economics, Yale University.
  17. Chris Papageorgiou, . "Trade as a Threshold Variable for Multiple Regimes," Departmental Working Papers 2001-06, Department of Economics, Louisiana State University.
  18. Fraley C. & Raftery A.E., 2002. "Model-Based Clustering, Discriminant Analysis, and Density Estimation," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 611-631, June.
  19. Brock,W.A. & Durlauf,S.N., 2000. "Growth economics and reality," Working papers 24, Wisconsin Madison - Social Systems.
  20. Raftery, Adrian E. & Dean, Nema, 2006. "Variable Selection for Model-Based Clustering," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 168-178, March.
  21. Cuaresma, Jesus Crespo, 2003. "Some million thresholds: Nonlinearity and cross-country growth regressions," Royal Economic Society Annual Conference 2003 51, Royal Economic Society.
  22. Papageorgiou, Chris, 2006. "Trade as a threshold variable for multiple regimes: Reply," Economics Letters, Elsevier, vol. 91(3), pages 460-461, June.
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  24. Huang, Ho-Chuan (River) & Chang, Ya-Kai, 2006. "Trade as a threshold variable for multiple regimes: A comment," Economics Letters, Elsevier, vol. 91(3), pages 458-459, June.
  25. Mark S. Handcock & Adrian E. Raftery & Jeremy M. Tantrum, 2007. "Model-based clustering for social networks," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 170(2), pages 301-354.
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