Institutions and Growth Revisited: OLS, 2SLS, G2SLS Random Effects IV Regression and Panel Fixed (within) IV Regression with Cross-Country Data
21 Pages Posted: 3 Oct 2011 Last revised: 26 Oct 2012
Date Written: October 2, 2011
This paper revisits the Institutions and growth models. Econometric techniques have been applied on cross-country data, just to confirm the apriori knowledge that Institutions effect on growth is positive and highly statistically significant. This evidence was confirmed by all four models. OLS proved as a better technique for our data than 2SLS, this simply because overidentification test showed that instrument cannot be considered exogenous, also Hausman test showed that OLS is better than 2SLS at 1% and 5% levels of significance. G2SLS estimator and Fixed effects panel estimators just confirmed the results from the OLS and 2SLS. As a proxy variable for institutions we used rule of law variable, also as instruments were used revolutions and freedom house rating as well as war casualties variables. Also as conclusion here trade is insignificant in influence to GDP growth compared with quality of institutions.
Keywords: Institutions, Growth, 2SLS, OLS, G2SLS, Random effects, IV regression, Panel Fixed (within) IV regression, cross-country data, Hausman test, Overidentification test
JEL Classification: F33
Suggested Citation: Suggested Citation