Truth and Robustness in Cross-Country Growth Regressions

59 Pages Posted: 27 Feb 2001

See all articles by Kevin D. Hoover

Kevin D. Hoover

Duke University - Departments of Economics and Philosophy

Stephen J. Perez

California State University, Sacramento - Department of Economics

Date Written: August 31, 2000

Abstract

The work of Levine and Renelt (1992) and Sala-i-Martin (1997a, b) which attempted to test the robustness of various determinants of growth rates of per capita GDP among countries using two variants of Edward Leamer's extreme-bounds analysis is reexamined. In a realistic Monte Carlo experiment in which the universe of potential determinants is drawn from those in Levine and Renelt's study, both versions of the extreme-bounds analysis are evaluated for their ability to recover the true specification. Levine and Renelt's method is shown to have low size and extremely low power: nothing is robust; while Sala-i- Martin's method is shown to have high size and high power: it is undiscriminating. Both methods are compared to a cross-sectional version of the general-to-specific search methodology associated with the LSE approach to econometrics. It is shown to have size near nominal size and high power. Sala-i-Martin's method and the general-to-specific method are then applied to the actual data from the original two studies. The results are consistent with the Monte Carlo results and are suggestive that the factors that most affect differences of growth rates are ones that are beyond the control of policymakers.

Keywords: growth, cross-country growth regressions, extreme-bounds analysis, general-to-specific specification search

JEL Classification: C4, C8, O4

Suggested Citation

Hoover, Kevin D. and Perez, Stephen J., Truth and Robustness in Cross-Country Growth Regressions (August 31, 2000). Available at SSRN: https://ssrn.com/abstract=258608 or http://dx.doi.org/10.2139/ssrn.258608

Kevin D. Hoover (Contact Author)

Duke University - Departments of Economics and Philosophy ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Stephen J. Perez

California State University, Sacramento - Department of Economics ( email )

6000 J Street
Sacramento, CA 95819-6082
United States
916-278-6919 (Phone)
916-278-5768 (Fax)

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