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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://128.118.178.162/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.
Contact details of provider: Web page: http://128.118.178.162

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  1. J. Bradford De Long & Lawrence H. Summers, 1990. "Equipment Investment and Economic Growth," NBER Working Papers 3515, National Bureau of Economic Research, Inc.
  2. Steven N. Durlauf & Danny T. Quah, 1998. "The New Empirics of Economic Growth," NBER Working Papers 6422, National Bureau of Economic Research, Inc.
  3. Carmen Fernandez & Eduardo Ley & Mark F.J. Steel, 1998. "Benchmark Priors for Bayesian Model Averaging," Econometrics 9804001, EconWPA, revised 31 Jul 1999.
  4. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  5. Xavier X. Sala-i-Martin, 1997. "I Just Ran Four Million Regressions," NBER Working Papers 6252, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. Smith, M. & Kohn, R., . "Nonparametric Regression using Bayesian Variable Selection," Statistics Working Paper _009, Australian Graduate School of Management.
  9. 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.
  10. repec:cup:etheor:v:12:y:1996:i:3:p:409-31 is not listed on IDEAS
  11. Siddhartha Chib & Edward Greenberg, 1994. "Markov Chain Monte Carlo Simulation Methods in Econometrics," Econometrics 9408001, EconWPA, revised 24 Oct 1994.
  12. 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.
  13. Brock,W.A. & Durlauf,S.N., 2000. "Growth economics and reality," Working papers 24, Wisconsin Madison - Social Systems.
  14. Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, vol. 75(3), pages 308-13, June.
  15. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
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