Abstract
Model uncertainty hampers consensus on the key determinants of economic growth. Some recent cross-country, cross-sectional analyses have employed Bayesian Model Averaging to address the issue of model uncertainty. This paper extends that approach to panel data models with country-specific fixed effects. The empirical results show that the most robust growth determinants are the price of investment goods, distance to major world cities, and political rights. This suggests that growth-promoting policy strategies should aim to reduce taxes and distortions that raise the prices of investment goods; improve access to international markets; and promote democracy-enhancing institutional reforms. Moreover, the empirical results are robust to different prior assumptions on expected model size.
Highlights
Over the last two decades, hundreds of empirical studies have attempted to identify the determinants of growth
A theoretical view holding that trade openness matters for economic growth is not logically inconsistent with another theoretical view that emphasizes the role of geography in growth
We propose a Bayesian Averaging of Maximum Likelihood Estimates (BAMLE) method in a panel data framework to determine which variables are signi...cantly related to growth
Summary
Over the last two decades, hundreds of empirical studies have attempted to identify the determinants of growth This is not to say that growth theories are of no use for that purpose. The problem is that growth theories are, using a term due to Brock and Durlauf (2001), open-ended. A theoretical view holding that trade openness matters for economic growth is not logically inconsistent with another theoretical view that emphasizes the role of geography in growth. This diversity of theoretical views makes it hard to identify the most e¤ective growth-promoting policies. The aim of this paper is to shed some light on this issue
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