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Nonlinearities in Cross-Country Growth Regressions: A Bayesian Averaging of Thresholds (BAT) Approach

We propose a framework for assessing the existence and quantifying the effect of threshold effects in cross-country growth regressions in the presence of model uncertainty. The method is based on Bayesian model averaging tech- niques and generalizes the Bayesian Averaging of Classical Estimates (BACE) method put forward by Sala-i-Martin, Doppelhofer, and Miller (2004). We ap- ply the method presented in this paper to a set of 21 variables that have been found to be robustly related to economic growth in a cross-section of 88 coun- tries. We find no evidence of robust threshold effects generated by the initial level of GDP per capita. However, we find that the proportion of years a country has been open to trade is an important source of nonlinear effects on economic growth.

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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0608.

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Date of creation: Sep 2006
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Handle: RePEc:vie:viennp:0608
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  1. Durlauf, Steven N. & Kourtellos, Andros & Minkin, Artur, 2001. "The local Solow growth model," European Economic Review, Elsevier, vol. 45(4-6), pages 928-940, May.
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  8. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (Bace) Approach," OECD Economics Department Working Papers 266, OECD Publishing.
  9. Xavier X. Sala-i-Martin, 1997. "I Just Ran Four Million Regressions," NBER Working Papers 6252, National Bureau of Economic Research, Inc.
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  11. Huang, Ho-Chuan (River) & Chang, Ya-Kai, 2006. "Trade as a threshold variable for multiple regimes: A comment," Economics Letters, Elsevier, vol. 91(3), pages 458-459, June.
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  18. Brock,W.A. & Durlauf,S.N., 2000. "Growth economics and reality," Working papers 24, Wisconsin Madison - Social Systems.
  19. Mark S. Handcock & Adrian E. Raftery & Jeremy M. Tantrum, 2007. "Model-based clustering for social networks," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 170(2), pages 301-354.
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  21. Eicher, Theo S. & Papageorgiou, Chris & Roehn, Oliver, 2007. "Unraveling the fortunes of the fortunate: An Iterative Bayesian Model Averaging (IBMA) approach," Journal of Macroeconomics, Elsevier, vol. 29(3), pages 494-514, September.
  22. Fraley C. & Raftery A.E., 2002. "Model-Based Clustering, Discriminant Analysis, and Density Estimation," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 611-631, June.
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  25. Papageorgiou, Chris, 2006. "Trade as a threshold variable for multiple regimes: Reply," Economics Letters, Elsevier, vol. 91(3), pages 460-461, June.
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