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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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File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie0608.pdf
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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
Contact details of provider: Web page: http://www.univie.ac.at/vwl

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  1. Xavier X. Sala-i-Martin, 1997. "I Just Ran Four Million Regressions," NBER Working Papers 6252, National Bureau of Economic Research, Inc.
  2. 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.
  3. Jesús Crespo Cuaresma, 2002. "Some million thresholds: Nonlinearity and cross-country growth regressions," Vienna Economics Papers 0210, University of Vienna, Department of Economics.
  4. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  5. Chris Papageorgiou, . "Trade as a Threshold Variable for Multiple Regimes," Departmental Working Papers 2001-06, Department of Economics, Louisiana State University.
  6. Phillips, P C B, 1991. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 333-64, Oct.-Dec..
  7. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
  8. Papageorgiou, Chris, 2006. "Trade as a threshold variable for multiple regimes: Reply," Economics Letters, Elsevier, vol. 91(3), pages 460-461, June.
  9. 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.
  10. Carmen Fernandez & Eduardo Ley & Mark Steel, 2001. "Model uncertainty in cross-country growth regressions," Econometrics 0110002, EconWPA.
  11. Durlauf,S.N. & Quah,D.T., 1998. "The new empirics of economic growth," Working papers 3, Wisconsin Madison - Social Systems.
  12. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  13. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  14. Edward E. Leamer, 1982. "Let's Take the Con Out of Econometrics," UCLA Economics Working Papers 239, UCLA Department of Economics.
  15. 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.
  16. Durlauf,S.N. & Kourtellos,A. & Minkin,A., 2000. "The local Solow growth model," Working papers 21, Wisconsin Madison - Social Systems.
  17. Koop, Gary & Potter, Simon M., 1998. "Bayes factors and nonlinearity: Evidence from economic time series1," Journal of Econometrics, Elsevier, vol. 88(2), pages 251-281, November.
  18. 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.
  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.
  20. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
  21. William A. Brock & Steven N.Durlauf, 2000. "Growth Economics and Reality," NBER Working Papers 8041, National Bureau of Economic Research, Inc.
  22. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  23. Winford H. Masanjala & Chris Papageorgiou, 2004. "The Solow model with CES technology: nonlinearities and parameter heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 171-201.
  24. Raftery, Adrian E. & Dean, Nema, 2006. "Variable Selection for Model-Based Clustering," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 168-178, March.
  25. 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.
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