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Truth and Robustness in Cross-Country Growth Regression

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Hoover, Kevin (U of California, Davis)

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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.

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Paper provided by University of California at Davis, Department of Economics in its series Working Papers with number 01-1.

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Date of creation: Aug 2000
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Handle: RePEc:ecl:ucdeco:01-1

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Find related papers by JEL classification:
C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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  15. Summers, Robert & Heston, Alan, 1988. "A New Set of International Comparisons of Real Product and Price Levels Estimates for 130 Countries, 1950-1985," Review of Income and Wealth, Blackwell Publishing, vol. 34(1), pages 1-25, March.
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