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

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  • Rehme, G¸nther

    (Technische Universit”t Darmstadt)

Abstract

This paper analyses 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.

Suggested Citation

  • Rehme, G¸nther, 2002. "Why Run a Million Regressions? Endogenous Policy and Cross-Country Growth Empirics," Royal Economic Society Annual Conference 2002 157, Royal Economic Society.
  • Handle: RePEc:ecj:ac2002:157
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    References listed on IDEAS

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    1. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-1198, December.
    2. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
    3. Robert J. Barro, 1991. "A Cross-Country Study of Growth, Saving, and Government," NBER Chapters,in: National Saving and Economic Performance, pages 271-304 National Bureau of Economic Research, Inc.
    4. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    5. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, 2004. "Some cautions on the use of panel methods for integrated series of macroeconomic data," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 322-340, December.
    6. Sala-i-Martin, Xavier X, 1996. "A Positive Theory of Social Security," Journal of Economic Growth, Springer, vol. 1(2), pages 277-304, June.
    7. Koester, Reinhard B & Kormendi, Roger C, 1989. "Taxation, Aggregate Activity and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses," Economic Inquiry, Western Economic Association International, vol. 27(3), pages 367-386, July.
    8. Von Schlicht Ekkehart, 1975. "A Neoclassical Theory of Wealth Distribution," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 189(1-2), pages 78-96, January.
    9. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-389, September.
    10. Bourguignon, Francois, 1981. "Pareto Superiority of Unegalitarian Equilibria in Stiglitz' Model of Wealth Distribution with Convex Saving Function," Econometrica, Econometric Society, vol. 49(6), pages 1469-1475, November.
    11. repec:tpr:qjecon:v:109:y:1994:i:2:p:465-90 is not listed on IDEAS
    12. Spanos,Aris, 1986. "Statistical Foundations of Econometric Modelling," Cambridge Books, Cambridge University Press, number 9780521269124.
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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.
    2. Rehme, Günther, 2014. "Endogenous (re-)distributive policies and economic growth: A comparative static analysis," Economic Modelling, Elsevier, vol. 40(C), pages 355-366.

    More about this item

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • D3 - Microeconomics - - Distribution
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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