Are Empirical Results in Economic Growth Models Biased Because of Omitted Variables? Cross-Country Evidence
The International Journal of Business and Finance Research, Vol. 4, No. 3, pp. 31-42, 2010
12 Pages Posted: 4 Jul 2011
Date Written: 2010
This study examines the impact of external factors, such as law, regulation, and technology on a country’s rate of economic growth. The results suggest that the technological, legal, and regulatory environment can play a major role towards enhancing the smooth functioning of the financial system and economic growth. While a growing body of evidence examines the individual impact of similar external factors, Demirguc-Kunt (2006) argues that it is crucial to consider all the relevant factors together in one model. Thus, this study first examines the individual impact of these external factors for both advanced and emerging countries. Next, we examine the joint impact of relevant factors selected by stepwise regression procedures. The findings provide evidence for both groups of countries that the best models for predicting economic growth are ones that do include all the relevant factors together in one model.
Keywords: legal system, regulation, technology, financial development, economic growth
JEL Classification: K00, G28, G21, O16, O11
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