IDEAS home Printed from https://ideas.repec.org/p/tin/wpaper/20110012.html
   My bibliography  Save this paper

Variable Selection and Functional Form Uncertainty in Cross-Country Growth Regressions

Author

Listed:
  • Tim Salimans

    (Erasmus University Rotterdam)

Abstract

Regression analyses of cross-country economic growth data are complicated by two main forms of model uncertainty: the uncertainty in selecting explanatory variables and the uncertainty in specifying the functional form of the regression function. Most discussions in the literature address these problems independently, yet a joint treatment is essential. We perform this joint treatment by extending the linear model to allow for multiple-regime parameter heterogeneity of the type suggested by new growth theory, while addressing the variable selection problem by means of Bayesian model averaging. Controlling for variable selection uncertainty, we confirm the evidence in favor of new growth theory presented in several earlier studies. However, controlling for functional form uncertainty, we find that the effects of many of the explanatory variables identified in the literature are not robust across countries and variable selections.

Suggested Citation

  • Tim Salimans, 2011. "Variable Selection and Functional Form Uncertainty in Cross-Country Growth Regressions," Tinbergen Institute Discussion Papers 11-012/4, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20110012
    as

    Download full text from publisher

    File URL: https://papers.tinbergen.nl/11012.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Maasoumi, Esfandiar & Racine, Jeff & Stengos, Thanasis, 2007. "Growth and convergence: A profile of distribution dynamics and mobility," Journal of Econometrics, Elsevier, vol. 136(2), pages 483-508, February.
    2. Bengoa, Marta & Sanchez-Robles, Blanca, 2003. "Foreign direct investment, economic freedom and growth: new evidence from Latin America," European Journal of Political Economy, Elsevier, vol. 19(3), pages 529-545, September.
    3. Yanikkaya, Halit, 2003. "Trade openness and economic growth: a cross-country empirical investigation," Journal of Development Economics, Elsevier, vol. 72(1), pages 57-89, October.
    4. Villani, Mattias & Kohn, Robert & Giordani, Paolo, 2009. "Regression density estimation using smooth adaptive Gaussian mixtures," Journal of Econometrics, Elsevier, vol. 153(2), pages 155-173, December.
    5. Crespo Cuaresma, Jesus & Doppelhofer, Gernot, 2007. "Nonlinearities in cross-country growth regressions: A Bayesian Averaging of Thresholds (BAT) approach," Journal of Macroeconomics, Elsevier, vol. 29(3), pages 541-554, September.
    6. Moreno, Ramon & Trehan, Bharat, 1997. "Location and the Growth of Nations," Journal of Economic Growth, Springer, vol. 2(4), pages 399-418, December.
    7. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 43-61.
    8. Ley, Eduardo & Steel, Mark F.J., 2012. "Mixtures of g-priors for Bayesian model averaging with economic applications," Journal of Econometrics, Elsevier, vol. 171(2), pages 251-266.
    9. Koop, Gary & Poirier, Dale J., 2004. "Bayesian variants of some classical semiparametric regression techniques," Journal of Econometrics, Elsevier, vol. 123(2), pages 259-282, December.
    10. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    11. Durlauf, Steven N & Johnson, Paul A, 1995. "Multiple Regimes and Cross-Country Growth Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 365-384, Oct.-Dec..
    12. Carmen Fernandez & Eduardo Ley & Mark F. J. Steel, 2001. "Model uncertainty in cross-country growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 563-576.
    13. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, vol. 73(1), pages 31-43, March.
    14. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, December.
    15. Antonio Ciccone & Marek Jarociński, 2010. "Determinants of Economic Growth: Will Data Tell?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 222-246, October.
    16. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    17. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    18. Steven N. Durlauf, 1993. "Nonergodic Economic Growth," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 349-366.
    19. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February.
    20. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
    21. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    22. Adrian Wood & Kersti Berge, 1997. "Exporting manufactures: Human resources, natural resources, and trade policy," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 35-59.
    23. Francisco L. Rivera-Batiz & Luis A. Rivera-Batiz, 2018. "Integration among Unequals," World Scientific Book Chapters, in: Francisco L Rivera-Batiz & Luis A Rivera-Batiz (ed.), International Trade, Capital Flows and Economic Development, chapter 4, pages 83-104, World Scientific Publishing Co. Pte. Ltd..
    24. Nalan Baştürk & Richard Paap & Dick van Dijk, 2012. "Structural differences in economic growth: an endogenous clustering approach," Applied Economics, Taylor & Francis Journals, vol. 44(1), pages 119-134, January.
    25. Chib S. & Jeliazkov I., 2001. "Marginal Likelihood From the Metropolis-Hastings Output," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 270-281, March.
    26. Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
    27. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, vol. 87(2), pages 178-183, May.
    28. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
    29. Quah, D., 1990. "Galton'S Fallacy And The Tests Of The Convergence Hypothesis," Working papers 552, Massachusetts Institute of Technology (MIT), Department of Economics.
    30. Pantelis Kalaitzidakis & Theofanis P. Mamuneas & Thanasis Stengos, 2000. "A non-linear sensitivity analysis of cross-country growth regressions," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 604-617, August.
    31. repec:dau:papers:123456789/10091 is not listed on IDEAS
    32. Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 259-276, September.
    33. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
    34. Jenny Minier, 2007. "Nonlinearities and Robustness in Growth Regressions," American Economic Review, American Economic Association, vol. 97(2), pages 388-392, May.
    35. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
    36. Binder, Michael & Pesaran, M Hashem, 1999. "Stochastic Growth Models and Their Econometric Implications," Journal of Economic Growth, Springer, vol. 4(2), pages 139-183, June.
    37. Liang, Feng & Paulo, Rui & Molina, German & Clyde, Merlise A. & Berger, Jim O., 2008. "Mixtures of g Priors for Bayesian Variable Selection," Journal of the American Statistical Association, American Statistical Association, vol. 103, pages 410-423, March.
    38. Papyrakis, Elissaios & Gerlagh, Reyer, 2004. "The resource curse hypothesis and its transmission channels," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 181-193, March.
    39. Paap, Richard & Franses, Philip Hans & van Dijk, Dick, 2005. "Does Africa grow slower than Asia, Latin America and the Middle East? Evidence from a new data-based classification method," Journal of Development Economics, Elsevier, vol. 77(2), pages 553-570, August.
    40. Liu, Zhenjuan & Stengos, Thanasis, 1999. "Non-linearities in Cross-Country Growth Regressions: A Semiparametric Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 527-538, Sept.-Oct.
    41. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
    42. Quah, Danny, 1993. " Galton's Fallacy and Tests of the Convergence Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 427-443, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aiste Ruseckaite & Dennis Fok & Peter Goos, 2016. "Flexible Mixture-Amount Models for Business and Industry using Gaussian Processes," Tinbergen Institute Discussion Papers 16-075/III, Tinbergen Institute.
    2. Rockey, James & Temple, Jonathan, 2016. "Growth econometrics for agnostics and true believers," European Economic Review, Elsevier, vol. 81(C), pages 86-102.
    3. Guohua Feng & Jiti Gao & Bin Peng, 2021. "Productivity Convergence in Manufacturing: A Hierarchical Panel Data Approach," Papers 2111.00449, arXiv.org.
    4. Guohua Feng & Jiti Gao & Bin Peng, 2019. "An Integrated Panel Data Approach to Modelling Economic Growth," Papers 1903.07948, arXiv.org.
    5. Bruns, Stephan B. & Ioannidis, John P.A., 2020. "Determinants of economic growth: Different time different answer?," Journal of Macroeconomics, Elsevier, vol. 63(C).
    6. Alan Ponce & Raul Alberto Ponce Rodriguez, 2020. "An Analysis of the Supply of Open Government Data," Future Internet, MDPI, vol. 12(11), pages 1-18, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Steven N. Durlauf & Andros Kourtellos & Chih Ming Tan, 2008. "Empirics of Growth and Development," Chapters, in: Amitava Krishna Dutt & Jaime Ros (ed.), International Handbook of Development Economics, Volumes 1 & 2, volume 0, chapter 3, Edward Elgar Publishing.
    2. Paul Johnson & Chris Papageorgiou, 2020. "What Remains of Cross-Country Convergence?," Journal of Economic Literature, American Economic Association, vol. 58(1), pages 129-175, March.
    3. Mark F. J. Steel, 2020. "Model Averaging and Its Use in Economics," Journal of Economic Literature, American Economic Association, vol. 58(3), pages 644-719, September.
    4. Bruns, Stephan B. & Ioannidis, John P.A., 2020. "Determinants of economic growth: Different time different answer?," Journal of Macroeconomics, Elsevier, vol. 63(C).
    5. Rockey, James & Temple, Jonathan, 2016. "Growth econometrics for agnostics and true believers," European Economic Review, Elsevier, vol. 81(C), pages 86-102.
    6. Cohen-Cole, Ethan B. & Durlauf, Steven N. & Rondina, Giacomo, 2012. "Nonlinearities in growth: From evidence to policy," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 42-58.
    7. Durlauf,S.N., 2003. "The convergence hypothesis after 10 years," Working papers 6, Wisconsin Madison - Social Systems.
    8. Markus Eberhardt & Francis Teal, 2011. "Econometrics For Grumblers: A New Look At The Literature On Cross‐Country Growth Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 109-155, February.
    9. Leon-Gonzalez, Roberto & Vinayagathasan, Thanabalasingam, 2015. "Robust determinants of growth in Asian developing economies: A Bayesian panel data model averaging approach," Journal of Asian Economics, Elsevier, vol. 36(C), pages 34-46.
    10. Eriṣ, Mehmet N. & Ulaṣan, Bülent, 2013. "Trade openness and economic growth: Bayesian model averaging estimate of cross-country growth regressions," Economic Modelling, Elsevier, vol. 33(C), pages 867-883.
    11. R Burger & S du Plessis, 2011. "Examining the Robustness of Competing Explanations of Slow Growth in African Countries," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 35(3), pages 21-47, December.
    12. Michael S. Delgado & Daniel J. Henderson & Christopher F. Parmeter, 2014. "Does Education Matter for Economic Growth?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(3), pages 334-359, June.
    13. Roberto Leon-Gonzalez & Daniel Montolio, 2004. "Growth, convergence and public investment. A Bayesian model averaging approach," Applied Economics, Taylor & Francis Journals, vol. 36(17), pages 1925-1936.
    14. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW), vol. 3, pages 1-72.
    15. Ali, Amjad & Ur Rehman, Hafeez, 2015. "Macroeconomic Instability and Its Impact on Gross Domestic Product: An Empirical Analysis of Pakistan," MPRA Paper 71037, University Library of Munich, Germany.
    16. Kottaridi, Constantina & Stengos, Thanasis, 2010. "Foreign direct investment, human capital and non-linearities in economic growth," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 858-871, September.
    17. Xanthippi Chapsa & Athanasios L. Athanasenas & Nikolaos Tabakis, 2019. "Real Convergence in EU-15: A Comparative Analysis of North versus South Europe," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 3-21.
    18. Magnus, Jan R. & Powell, Owen & Prüfer, Patricia, 2010. "A comparison of two model averaging techniques with an application to growth empirics," Journal of Econometrics, Elsevier, vol. 154(2), pages 139-153, February.
    19. Rodríguez, Francisco & Shelton, Cameron A., 2013. "Cleaning up the kitchen sink: Specification tests and average derivative estimators for growth econometrics," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 260-273.
    20. Man, Georg, 2015. "Competition and the growth of nations: International evidence from Bayesian model averaging," Economic Modelling, Elsevier, vol. 51(C), pages 491-501.

    More about this item

    Keywords

    growth regression; variable selection; model uncertainty; model averaging; semi-parametric Bayes; MCMC;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tin:wpaper:20110012. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/tinbenl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tinbergen Office +31 (0)10-4088900 (email available below). General contact details of provider: https://edirc.repec.org/data/tinbenl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.