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Blunt Instruments: On Establishing the Causes of Economic Growth

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  • Michael Clemens
  • Samuel Bazzi

Abstract

Concern has intensified in recent years that many instrumental variables used in widely-cited growth regressions may be invalid, weak, or both. Attempts to remedy this general problem remain inadequate. We demonstrate that a range of published growth regressions may contain spurious results because of hidden problems with the instrumental variables they use. We urge several steps to surpass these difficulties: grounding of growth regressions in slightly more generalized theoretical models, deployment of the latest methods for estimating sensitivity to violations of exclusion restrictions, opening the black box of GMM with supportive evidence of instrument strength, and utilization of weak-instrument robust tests and estimators.

Suggested Citation

  • Michael Clemens & Samuel Bazzi, 2009. "Blunt Instruments: On Establishing the Causes of Economic Growth," Working Papers 171, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:171
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    File URL: http://www.cgdev.org/content/publications/detail/1422132/
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    Cited by:

    1. Docquier, F. & Vasilakis, Ch. & Tamfutu Munsi, D., 2014. "International migration and the propagation of HIV in sub-Saharan Africa," Journal of Health Economics, Elsevier, vol. 35(C), pages 20-33.
    2. Vieira, Flávio & MacDonald, Ronald & Damasceno, Aderbal, 2012. "The role of institutions in cross-section income and panel data growth models: A deeper investigation on the weakness and proliferation of instruments," Journal of Comparative Economics, Elsevier, vol. 40(1), pages 127-140.
    3. Markus Eberhardt & Francis Teal, "undated". "Aggregation versus Heterogeneity in Cross-Country Growth Empirics," Discussion Papers 11/08, University of Nottingham, CREDIT.
    4. repec:ilo:ilowps:456281 is not listed on IDEAS
    5. Ann-Sofie Isaksson, 2011. "Social divisions and institutions: assessing institutional parameter variation," Public Choice, Springer, vol. 147(3), pages 331-357, June.
    6. Channing Arndt & Sam Jones & Finn Tarp, 2009. "Aid and Growth: Have We Come Full Circle?," WIDER Working Paper Series WIDER Discussion Paper 20, World Institute for Development Economic Research (UNU-WIDER).
    7. Alessia Lo Turco & Daniela Maggioni, 2013. "On the Role of Imports in Enhancing Manufacturing Exports," The World Economy, Wiley Blackwell, vol. 36(1), pages 93-120, January.
    8. Francis Teal & Markus Eberhardt, 2010. "Productivity Analysis in Global Manufacturing Production," Economics Series Working Papers 515, University of Oxford, Department of Economics.
    9. Eberhardt, Markus & Teal, Francis, 2008. "Modeling technology and technological change in manufacturing: how do countries differ?," MPRA Paper 10690, University Library of Munich, Germany.
    10. Arndt, Channing & Jones, Sam & Tarp, Finn, 2015. "Assessing Foreign Aid’s Long-Run Contribution to Growth and Development," World Development, Elsevier, vol. 69(C), pages 6-18.
    11. Markus Eberhardt & Francis Teal, 2011. "Econometrics For Grumblers: A New Look At The Literature On Cross‐Country Growth Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 109-155, February.
    12. Marcelo Dabós & Tomás Williams, 2010. "Revaluing the Impact of Financial Development on Economic Growth and its Sources," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(60), pages 53-104, October -.
    13. Haggard, Stephan & Tiede, Lydia, 2011. "The Rule of Law and Economic Growth: Where are We?," World Development, Elsevier, vol. 39(5), pages 673-685, May.
    14. Thomas Barnebeck Andersen & Sam Jones & Finn Tarp, 2012. "The Finance–Growth Thesis: A Sceptical Assessment-super- †," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 21(suppl_1), pages -88, January.
    15. Falco, Paolo & Kerr, Andrew & Rankin, Neil & Sandefur, Justin & Teal, Francis, 2011. "The returns to formality and informality in urban Africa," Labour Economics, Elsevier, vol. 18(S1), pages S23-S31.

    More about this item

    Keywords

    IV; instrumental variables; ; 2SLS; two-stage least squares; Generalized Method of Moments; GMM; Blundell-Bond; Arellano-Bond; exclusion restriction; economic growth; regression; weak instruments; valid instruments; overidentification; underidentification; identification problem; growth determinants; foreign aid; institutions; geography; legal origins; too many instruments.;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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