Evaluating ingenious instruments for fundamental determinants of long-run economic growth and development*
Owen, P. Dorian

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Owen, P. D. (2015). Evaluating ingenious instruments for fundamental determinants of long-run economic growth and development* (Economics Discussion Papers Series No. 1508). University of Otago. Retrieved from http://hdl.handle.net/10523/6122
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http://hdl.handle.net/10523/6122
Abstract:
The empirical literature on the determinants of cross-country differences in long-run development is characterized by the ingenious nature of many of the instruments used. However, scepticism remains about their ability to provide a valid basis for causal inference. This paper examines the extent to which explicit consideration of the statistical adequacy of the underlying reduced form (RF), which provides an embedding framework for the structural equations, can usefully complement economic theory as a basis for assessing instrument choice in the fundamental determinants literature. Diagnostic testing of RFs in influential studies reveals evidence of model misspecification, with parameter non-constancy and spatial dependence of the residuals almost ubiquitous. This feature, surprisingly not previously identified, potentially undermines inferences about the structural parameters, such as the quantitative and statistical significance of different fundamental determinants.
Date:
2015-12
Publisher:
University of Otago
Series number:
1508
ISSN:
1178-2293 (Online)
Keywords:
Fundamental determinants of economic development; long-run economic growth; instrumental variables; reduced form; statistical adequacy
Research Type:
Discussion Paper
Languages:
English
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- Economics [318]
- Discussion Paper [441]
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