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

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Abstract

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 techniques and generalizes the Bayesian Averaging of Classical Estimates (BACE) method put forward by Sala-i-Martin, Doppelhofer, and Miller (2004). We apply 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 countries 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.

Suggested Citation

  • Jesus Crespo Cuaresma & Gernot Doppelhofer, 2006. "Nonlinearities in Cross-Country Growth Regressions: A Bayesian Averaging of Thresholds (BAT) Approach," Vienna Economics Papers vie0608, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie0608
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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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