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

See all articles by Hsin-Yu Liang

Hsin-Yu Liang

Feng Chia University

Alan K. Reichert

Cleveland State University

Date Written: 2010

Abstract

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

Suggested Citation

Liang, Hsin-Yu and Reichert, Alan K., Are Empirical Results in Economic Growth Models Biased Because of Omitted Variables? Cross-Country Evidence (2010). The International Journal of Business and Finance Research, Vol. 4, No. 3, pp. 31-42, 2010. Available at SSRN: https://ssrn.com/abstract=1875046

Hsin-Yu Liang (Contact Author)

Feng Chia University ( email )

100 Wenhwa Road
Seatwen
Taichung
Taiwan

Alan K. Reichert

Cleveland State University ( email )

Cleveland, OH 44115
United States

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