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Determinants of Human Development: Insights from State-Dependent Panel Models

  • Michael Binder

    ()

    (Graduate School of Economics, Finance, and Management at Goethe University, Johannes Gutenberg University Mainz and Technical University Darmstadt and the Center for Financial Studies)

  • Georgios Georgiadis

    ()

    (Graduate School of Economics, Finance, and Management at Goethe University, Johannes Gutenberg University Mainz and Technical University Darmstadt)

In this paper, we study economic development in a panel of 84 countries from 1970 to 2005. We focus on characterizing heterogeneities in the development effects of macroeconomic policies and on comparing the development process as measured by GDP to that measured by the Human Development Index (HDI). We do so within a novel dynamic panel modelling framework that can account for crucial aspects of both the cross-sectional and intertemporal features of the observed process of economic development, and that can capture the dependence of the development effects of macroeconomic policies on differences in countries' persistent characteristics, such as their social norms and institutions. Among our findings are that macroeconomic policies affect economic development with less delay than suggested by conventional econometric frameworks, yet impact HDI with longer delay and overall less strongly than GDP. Differences in countries' persistent characteristics may even affect the sign of the long-run development effects of a given macroeconomic policy: Fiscal stimuli in the form of government consumption positively affect GDP in countries with low institutional quality, but negatively affect long-run GDP in countries with high institutional quality.

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Paper provided by Human Development Report Office (HDRO), United Nations Development Programme (UNDP) in its series Human Development Research Papers (2009 to present) with number HDRP-2010-24.

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Length: 63 pages
Date of creation: Sep 2010
Date of revision:
Publication status: Published as background research for the 2010 Human Development Report.
Handle: RePEc:hdr:papers:hdrp-2010-24
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  1. Francisco Rodríguez, 2006. "Cleaning Up the Kitchen Sink: Growth Empirics When the World Is Not Simple," Wesleyan Economics Working Papers 2006-004, Wesleyan University, Department of Economics, revised 17 May 2007.
  2. Andrea Brandolini, 2008. "On applying synthetic indices of multidimensional well-being: health and income inequalities in selected EU countries," Temi di discussione (Economic working papers) 668, Bank of Italy, Economic Research and International Relations Area.
  3. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  4. David Mayer-Foulkes, 2010. "Divergences and Convergences in Human Development," Human Development Research Papers (2009 to present) HDRP-2010-20, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
  5. Koen Decancq & María Ana Lugo, 2013. "Weights in Multidimensional Indices of Wellbeing: An Overview," Econometric Reviews, Taylor & Francis Journals, vol. 32(1), pages 7-34, January.
  6. William Hauk & Romain Wacziarg, 2009. "A Monte Carlo study of growth regressions," Journal of Economic Growth, Springer, vol. 14(2), pages 103-147, June.
  7. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  8. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," NBER Working Papers 7750, National Bureau of Economic Research, Inc.
  9. Binder, M. & Pesaran, M.H., 1996. "Stochastic Growth," Cambridge Working Papers in Economics 9615, Faculty of Economics, University of Cambridge.
  10. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
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