Spurious Regressions and Near-Multicollinearity, with an Application to Aid, Policies and Growth
In multiple regressions, 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 which are unfortunately �"outliers driven" and 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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- Burnside, Craig & Dollar, David, 1997.
"Aid, policies, and growth,"
Policy Research Working Paper Series
1777, The World Bank.
- repec:hal:wpaper:hal-00750495 is not listed on IDEAS
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"Conditional aid effectiveness: A meta-study,"
Journal of International Development,
John Wiley & Sons, Ltd., vol. 22(4), pages 391-410.
- repec:cup:cbooks:9780521452175 is not listed on IDEAS
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- Aris Spanos, 2006. "Revisiting the omitted variables argument: Substantive vs. statistical adequacy," Journal of Economic Methodology, Taylor & Francis Journals, vol. 13(2), pages 179-218.
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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.
- Samuel Bazzi & Michael A. Clemens, 2013. "Blunt Instruments: Avoiding Common Pitfalls in Identifying the Causes of Economic Growth," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 152-86, April.
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