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

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  • 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
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    Citations

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    Cited by:

    1. Rockey, James & Temple, Jonathan, 2016. "Growth econometrics for agnostics and true believers," European Economic Review, Elsevier, vol. 81(C), pages 86-102.
    2. 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.
    3. Guohua Feng & Jiti Gao & Bin Peng, 2019. "An Integrated Panel Data Approach to Modelling Economic Growth," Papers 1903.07948, arXiv.org.

    More about this item

    Keywords

    growth regression; variable selection; model uncertainty; model averaging; semi-parametric Bayes; MCMC;

    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

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