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Why Run a Million Regressions? Endogenous Policy and Cross Country Growth

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  • Rehme, Günther

Abstract

This paper analyzes the link between growth and public policy when the latter depends on economically important fundamentals. When policy is endogenous the measured effects of policy on growth will generally be biased. Using a widely quoted theoretical model, the signs of the biases are derived. It is shown that the usually reported effects on growth of tax rate variables related to GDP, the ratio of public investment to total investment and the ratio of redistributive transfers to GDP are generally biased downwards. Based on these signed biases the paper discusses some empirical results that seem puzzling from a theoretical viewpoint.

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  • Rehme, Günther, 2004. "Why Run a Million Regressions? Endogenous Policy and Cross Country Growth," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 21579, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:21579
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/21579/
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    Cited by:

    1. Günther Rehme, 2011. "Endogenous Policy And Cross‐Country Growth Empirics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(2), pages 262-296, May.

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