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Model uncertainty in cross-country growth regressions

  • Carmen Fernandez

    (University of Saint Andrews)

  • Eduardo Ley

    (IMF Institute)

  • Mark Steel

    (University of Kent at Canterbury)

We investigate the issue of model uncertainty in cross-country growth regressions using Bayesian Model Averaging (BMA). We find that the posterior probability is very spread among many models suggesting the superiority of BMA over choosing any single model. Out-of-sample predictive results support this claim. In contrast with Levine and Renelt (1992), our results broadly support the more "optimistic'' conclusion of Sala-i-Martin (1997b), namely that some variables are important regressors for explaining cross-country growth patterns. However, care should be taken in the methodology employed. The approach proposed here is firmly grounded in statistical theory and immediately leads to posterior and predictive inference.

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File URL: http://econwpa.repec.org/eps/em/papers/9903/9903003.pdf
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Paper provided by EconWPA in its series Econometrics with number 9903003.

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Date of creation: 27 Mar 1999
Date of revision: 06 Oct 2001
Handle: RePEc:wpa:wuwpem:9903003
Note: Type of Document - Tex; prepared on MacOS, TeXtures; to print on any printer; figures: included. Forthcoming in the Journal of Applied Econometrics. Replaces the paper entitled: "We have just averaged over two trillion cross-country growth regressions" with ewp-em/0110002.
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  1. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, vol. 73(1), pages 31-43, March.
  2. Temple, Jonathan, 2000. "Growth Regressions and What the Textbooks Don't Tell You," Bulletin of Economic Research, Wiley Blackwell, vol. 52(3), pages 181-205, July.
  3. S Durlauf & Danny Quah, 1998. "The New Empirics of Economic Growth," CEP Discussion Papers dp0384, Centre for Economic Performance, LSE.
  4. 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.
  5. Chib, Siddhartha & Greenberg, Edward, 1996. "Markov Chain Monte Carlo Simulation Methods in Econometrics," Econometric Theory, Cambridge University Press, vol. 12(03), pages 409-431, August.
  6. Xavier X. Sala-i-Martin, 1997. "I Just Ran Four Million Regressions," NBER Working Papers 6252, National Bureau of Economic Research, Inc.
  7. De Long, J Bradford & Summers, Lawrence H, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 445-502, May.
  8. William A. Brock & Steven N.Durlauf, 2000. "Growth Economics and Reality," NBER Working Papers 8041, National Bureau of Economic Research, Inc.
  9. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  10. Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, vol. 75(3), pages 308-13, June.
  11. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  12. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February.
  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. Smith, Michael & Kohn, Robert, 1996. "Nonparametric regression using Bayesian variable selection," Journal of Econometrics, Elsevier, vol. 75(2), pages 317-343, December.
  15. repec:cup:etheor:v:12:y:1996:i:3:p:409-31 is not listed on IDEAS
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