Spurious Regressions and Near-Multicollinearity, with an Application to Aid, Policies and Growth
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  article which found that aid had an effect on growth only for countries achieving "good" macroeconomic policies.
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- repec:cup:cbooks:9780521452175 is not listed on IDEAS
- Burnside, Craig & Dollar, David, 1997.
"Aid, policies, and growth,"
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John Wiley & Sons, Ltd., vol. 22(4), pages 391-410.
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- 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.
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