Unraveling the Fortunates of the Fortunate: An Iterative Bayesian Model Averaging (IBMA) Approach

30 Pages Posted: 15 Feb 2007

See all articles by Theo S. Eicher

Theo S. Eicher

University of Washington - Department of Economics

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department

Oliver Roehn

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 2007

Abstract

We investigate country heterogeneity in cross-country growth regressions. In contrast to the previous literature that focuses on low-income countries, this study also highlights growth determinants in high-income (OECD) countries. We introduce Iterative Bayesian Model Averaging (IBMA) to address not only potential parameter heterogeneity, but also the model uncertainty inherent in growth regressions. IBMA is essential to our estimation because the simultaneous consideration of model uncertainty and parameter heterogeneity in standard growth regressions increases the number of candidate regressors beyond the processing capacity of ordinary BMA algorithms. Our analysis generates three results that strongly support different dimensions of parameter heterogeneity. First, while a large number of regressors can be identified as growth determinants in Non-OECD countries, the same regressors are irrelevant for OECD countries. Second, Non-OECD countries and the global sample feature only a handful of common growth determinants. Third, and most devastatingly, the long list of variables included in popular cross-country datasets does not contain regressors that begin to satisfactorily characterize the basic growth determinants in OECD countries.

Keywords: growth regressions, growth determinants of OECD countries, parameter heterogeneity, model uncertainty, Iterative Bayesian Model Avering

JEL Classification: O40, O47, O51, O52

Suggested Citation

Eicher, Theo S. and Papageorgiou, Chris and Roehn, Oliver, Unraveling the Fortunates of the Fortunate: An Iterative Bayesian Model Averaging (IBMA) Approach (February 2007). CESifo Working Paper Series No. 1907. Available at SSRN: https://ssrn.com/abstract=963315

Theo S. Eicher (Contact Author)

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Oliver Roehn

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschingerstr. 5
Munich, DE-81679
Germany

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