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Sharp Instrument: A Stab at Identifying the Causes of Economic Growth

Author

Listed:
  • Reda Cherif
  • Fuad Hasanov
  • Lichen Wang

Abstract

We shed new light on the determinants of growth by tackling the blunt and weak instrument problems in the empirical growth literature. As an instrument for each endogenous variable, we propose average values of the same variable in neighboring countries. This method has the advantage of producing variable-specific and time-varying—namely, “sharp”—and strong instruments. We find that export sophistication is the only robust determinant of growth among standard growth determinants such as human capital, trade, financial development, and institutions. Our results suggest that other growth determinants may be important to the extent they help improve export sophistication.

Suggested Citation

  • Reda Cherif & Fuad Hasanov & Lichen Wang, 2018. "Sharp Instrument: A Stab at Identifying the Causes of Economic Growth," IMF Working Papers 2018/117, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2018/117
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    References listed on IDEAS

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    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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