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Techniques for dealing with reverse causality between institutions and economic performance

Author

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  • Cingolani, Luciana

    () (UNU-MERIT / MGSOG, Maastricht University)

  • Crombrugghe, Denis de

    () (School of Business and Economics, Maastricht University)

Abstract

This article provides a succinct review of the arguments stressing the mutual relationship between institutions and economic performance, and a scholarly account of some of the most popular econometric strategies used to minimize reversed causality problems in impact estimation. Among the techniques revisited we find the instrumental variables (IV) approach, distributed lags and vector autoregressions (VAR), quasi-experiments, and identification by heteroskedasticity (IH). Ultimately, the review is conceived as a methodological aide to researchers seeking to explore causal relationships through the use of the Institutional Profiles Database (IPD) produced by the Agence Francaise de Developpement (AFD).

Suggested Citation

  • Cingolani, Luciana & Crombrugghe, Denis de, 2012. "Techniques for dealing with reverse causality between institutions and economic performance," MERIT Working Papers 034, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2012034
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    File URL: https://www.merit.unu.edu/publications/wppdf/2012/wp2012-034.pdf
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    References listed on IDEAS

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    Keywords

    Institutions and growth; endogeneity; instrumental variables; dynamic analysis; identification; heteroskedasticity.;

    JEL classification:

    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • P14 - Economic Systems - - Capitalist Systems - - - Property Rights

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