Sunday, February 18, 2007

Mankiw on cross-country growth regressions

A couple months ago I was debating whether to ask Prof Greg Mankiw about his thoughts on cross-country growth regressions, but I was too shy. I'm excited to see that someone else got to him.
I don’t have anything to add, I just thought it was a good post. Here's a short excerpt, but the whole thing is worth reading.

In...The Growth of Nations, I tried to spell out the reasons for my skepticism [of cross-country growth regressions]. I emphasized three problems, which I called the simultaneity problem (it is hard to disentangle cause and effect), the multicollinearity problem (most of the potential determinants of growth are correlated with each other and imperfectly measured, making it hard to figure out which is the true determinant), and the degrees-of-freedom problem (there are more plausible hypotheses than data points).

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