A sensitivity analysis of cross-country growth regressions

A vast amount of literature uses cross-country regressions to find empirical links between policy indicators and long-run average growth rates. The authors study whether the conclusions from existing studies are robust or fragile when small changes in the list of independent variables occur. They find that although"policy"appears to be importantly related to growth, there is no strong independent relationship between growth and almost every existing policy indicator. They also find that very few macroeconomic variables are robustly correlated with cross-country growth rates. They clarify the conditions under which one finds convergence of per capita output levels and confirm the positive correlation between the share of investment in GDP and long-run growth. They conclude that all findings using the share of exports in GDP could be obtained almost identically using the total trade or import share and also that few commonly used fiscal indicators are robustly correlated with growth. Finally, the authors highlight the importance of considering alternative specifications in cross-country growth regressions.Economic Theory&Research,Achieving Shared Growth,Governance Indicators,Inequality,Environmental Economics&Policies

Economic growth : a review of the theoretical and empirical literature

In recent years, economists have developed new models of endogenous economic growth that consider policy influences on growth and divergent outcomes among countries. These models deal with such issues as growth, the operation of financial markets, trade policy, government expenditures, and taxation. Using the standard neoclassical growth model as a point of departure, the author reviewed important recent developments in growth theory. He analyzed the methodology of several endogenous growth models and examined models aimed at particular policy issues. One reason for the success of the standard neoclassical growth model, is that it provided a convenient tool for organizing data on the sources of economic growth. The model left much of the growth unexplained, however. Cross-sectional analysis has provided some useful insights into the growth process. Economists working in this area should target their work directly to the analysis of policy options in developing countries. More work is also necessary at the sectoral level. The new models of growth have not adequately described the issues of structural transformation and disequilibrium in factor markets. Policymaking generally will benefit from empirical results generated from more carefully constructed structural economic models.Economic Growth,Economic Theory&Research,Achieving Shared Growth,Environmental Economics&Policies,Health Monitoring&Evaluation

A Sensitivity Analysis of Cross-Country Growth Regressions.

A vast literature uses cross-country regressions to search for empirical linkages between long-run growth rates and a variety of economic policy, political, and institutional indicators. This paper examines whether the conclusions from existing studies are robust or fragile to small changes in the conditioning information set. The authors find that almost all results are fragile. They do, however, identify a positive, robust correlation between growth and the share of investment in GDP and between the investment share and the ratio of international trade to GDP. The authors clarify the conditions under which there is evidence of per capita output convergence. Copyright 1992 by American Economic Association.

Cross-country studies of growth and policy : methodological, conceptual, and statistical problems

This paper reviews the conceptual, methodological, and statistical problems associated with drawing inferences from cross-country regressions. The authors elaborate on the particular problems associated with empirical attempts to link particular policies with long-run growth. They hope to stimulate improvements in the design, implementation, and interpretability of cross-country investigations and to caution readers about the confidence they place in existing findings.Economic Theory&Research,Achieving Shared Growth,Environmental Economics&Policies,Governance Indicators,Inequality