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Why Run a Million Regressions? Endogenous Policy and Cross Country Growth Empirics

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  • Rehme, Günther

Abstract

This paper analyzes the link between growth and public policy when the latter depends on economically important fundamentals. When policy is endogenous the measured effects of policy on growth will generally be biased. Using a widely quoted theoretical model, the signs of the biases are derived. It is shown that the usually reported effects on growth of tax rate variables related to GDP, the ratio of public investment to total investment and the ratio of redistributive transfers to GDP are generally biased downwards. Based on these signed biases the paper discusses some empirical results that seem puzzling from a theoretical viewpoint.

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  • Rehme, Günther, 2004. "Why Run a Million Regressions? Endogenous Policy and Cross Country Growth Empirics," Darmstadt Discussion Papers in Economics 140, Darmstadt University of Technology, Department of Law and Economics.
    • Handle: RePEc:zbw:darddp:dar_21579
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    Cited by:

    1. Günther Rehme, 2011. "Endogenous Policy And Cross‐Country Growth Empirics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(2), pages 262-296, May.
    2. Rehme, Günther, 2014. "Endogenous (re-)distributive policies and economic growth: A comparative static analysis," Economic Modelling, Elsevier, vol. 40(C), pages 355-366.

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    More about this item

    Keywords

    Growth; Public Policy; Cross-Sectional Models;
    All these keywords.

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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