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Blunt Instruments: A Cautionary Note On Establishing The Causes Of Economic Growth

Download Now Date Added: Jul 2010
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Concern has intensified in recent years that many instrumental variables used in widely cited growth regressions may be invalid, weak, or both. Attempts to remedy this general problem remain inadequate. The authors demonstrate that a range of published growth regressions may contain spurious results because of hidden problems with the instrumental variables they use. They urge several steps to surpass these difficulties: grounding of growth regressions in slightly more generalized theoretical models, deployment of the latest methods for estimating sensitivity to violations of exclusion restrictions, opening the "Black box" of GMM with supportive evidence of instrument strength, and utilization of weak-instrument robust tests and estimators.