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A new approach to causality and economic growth

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  • Steven M. Sheffrin
  • Robert K. Triest

Abstract

This paper examines the issue of causality in cross-sectional empirical models of economic growth. Using an approach to determining causal structures based on tests for conditional independence in sets of variables, we uncover alternative causal structures that are consistent with the correlation pattern of the variables in the data. We use these methods to develop alternative causal empirical models of economic growth. One of our consistent findings is that we can rule out the possibility that equipment investment causes growth. Our search procedure leads naturally to a structural model with latent variables which we then estimate. The results of our estimation are broadly consistent with traditional models of economic growth augmented for human capital.

Suggested Citation

  • Steven M. Sheffrin & Robert K. Triest, 1995. "A new approach to causality and economic growth," Working Papers 95-12, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:95-12
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    References listed on IDEAS

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    1. Hoover, Kevin D & Sheffrin, Steven M, 1992. "Causation, Spending, and Taxes: Sand in the Sandbox or Tax Collector for the Welfare State?," American Economic Review, American Economic Association, vol. 82(1), pages 225-248, March.
    2. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    3. Alan J. Auerbach & Kevin A. Hassett & Stephen D. Oliner, 1994. "Reassessing the Social Returns to Equipment Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 789-802.
    4. Magnus Blomström & Robert E. Lipsey & Mario Zejan, 1996. "Is Fixed Investment the Key to Economic Growth?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(1), pages 269-276.
    5. N. Gregory Mankiw & David Romer & David Weil, 1990. "A Contribution to the Empirics of Economic Growth," Working Papers 1990-24, Brown University, Department of Economics.
    6. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 445-502.
    7. Hoover, Kevin D., 1991. "The causal direction between money and prices : An alternative approach," Journal of Monetary Economics, Elsevier, vol. 27(3), pages 381-423, June.
    8. Jones, Charles I., 1994. "Economic growth and the relative price of capital," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 359-382, December.
    9. Harrison, Ann, 1996. "Openness and growth: A time-series, cross-country analysis for developing countries," Journal of Development Economics, Elsevier, vol. 48(2), pages 419-447, March.
    10. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 407-437.
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    Cited by:

    1. Perez, Stephen J. & Siegler, Mark V., 2006. "Agricultural and monetary shocks before the great depression: A graph-theoretic causal investigation," Journal of Macroeconomics, Elsevier, vol. 28(4), pages 720-736, December.
    2. Selva Demiralp & Kevin D. Hoover, 2003. "Searching for the Causal Structure of a Vector Autoregression," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 745-767, December.
    3. Jinjarak, Yothin & Sheffrin, Steven M., 2011. "Causality, real estate prices, and the current account," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 233-246, June.

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