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Spurious Regressions and Near-Multicollinearity, with an Application to Aid, Policies and Growth

  • Jean-Bernard Chatelain

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Kirsten Ralf

    ()

    (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)

Explanatory variables with simple correlation coefficients with the dependent variable below 0.1 in absolute value (such as aid with economic growth) may have very large and statistically significant estimated parameters in multiple regressions, which are unifortunately "outliers driven" or spurious. This is obtained by including another regressor which is highly correlated with the initial regressor, such as a lag, a square or interaction terms of this regressor. The analysis is applied on the "Botswana outliers driven" Burnside and Dollar [2000] article which found that aid had an effect on growth only for countries achieving "good" macroeconomic policies.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00802579.

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Date of creation: Nov 2012
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Handle: RePEc:hal:cesptp:halshs-00802579
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00802579
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  1. repec:cup:cbooks:9780521452175 is not listed on IDEAS
  2. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  3. Hristos Doucouliagos & Martin Paldam, 2010. "Conditional aid effectiveness: A meta-study," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(4), pages 391-410.
  4. repec:cup:cbooks:9780521002882 is not listed on IDEAS
  5. Hristos Doucouliagos & Martin Paldam, 2005. "Aid Effectiveness on Growth. A Meta Study," Economics Working Papers 2005-13, School of Economics and Management, University of Aarhus.
  6. Jean-Bernard Chatelain & Kirsten Ralf, 2010. "Inference on Time-Invariant Variables using Panel Data: A Pre-Test Estimator with an Application to the Returns to Schooling," PSE Working Papers hal-00492039, HAL.
  7. T. D. Stanley, 2005. "Beyond Publication Bias," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 309-345, 07.
  8. Friedman, Lynn & Wall, Melanie, 2005. "Graphical Views of Suppression and Multicollinearity in Multiple Linear Regression," The American Statistician, American Statistical Association, vol. 59, pages 127-136, May.
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