Blunt Instruments: On Establishing the Causes of Economic Growth
47 Pages Posted: 22 May 2009 Last revised: 22 Jul 2010
Date Written: May 20, 2009
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. We demonstrate that a range of published growth regressions may contain spurious results because of hidden problems with the instrumental variables they use. We 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.
Keywords: economic growth, development, causation, identification, instrumental variable, valid instrument, weak instrument, causal effect, endogeneity
JEL Classification: F35, C12, O4
Suggested Citation: Suggested Citation