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

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  • Günther Rehme

Abstract

This paper analyzes the link between long-run economic growth and policy that depends on important economic fundamentals. In simple growth regressions the measured policy effects would then 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 to total investment and that of redistributive transfers to GDP - would generally be biased downwards. The signed biases provide a theory-based lens through which some empirical, yet theoretically puzzling, results can be viewed and subsequently discussed.

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  • Günther Rehme, 2010. "Why Run a Million Regressions? Endogenous Policy and Cross-Country Growth Empirics," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(4), pages 735-759, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201012)166:4_735:wramre_2.0.tx_2-l
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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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    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • D3 - Microeconomics - - Distribution
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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