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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- Hoover,Kevin D., 2001.
"Causality in Macroeconomics,"
Cambridge University Press, number 9780521002882, November.
- David Dollar & Craig Burnside, 2000.
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42867, University Library of Munich, Germany.
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Economics Working Papers
2005-14, Department of Economics and Business Economics, Aarhus University.
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- 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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