Evaluating Specification Search in Cross-Country Growth Regressions: Extreme Bounds vs. General-to-Specific Methodologies

53 Pages Posted: 30 Sep 2001

See all articles by Kevin D. Hoover

Kevin D. Hoover

Duke University - Departments of Economics and Philosophy

Stephen J. Perez

California State University, Sacramento - Department of Economics

Date Written: September 6, 2001

Abstract

This paper is a substantially revised version of our earlier working paper, "Truth and Robustness in Cross-country Growth Regressions." The most important revisions concern the handling of missing observations in the cross-country data set. In the earlier paper, these had been handled through case-wise deletion-the method common to all previous studies. In this version, they are handled through multiple imputation-a method that retains substantially more of the information content of the data set. Two variants of Leamer's (1983) extreme-bounds analysis are evaluated for their ability to recover the true specification and compared to a cross-sectional version of the general-to-specific search methodology associated with the LSE approach to econometrics. Evaluations are based on a realistic Monte Carlo experiment in which the universe of potential determinants is drawn from those in Levine and Renelt's (1992) study. Levine and Renelt's method is shown to have low size and extremely low power: nothing is robust. Sala-i-Martin's (1997a, b) method is shown to have high size and high power: it is undiscriminating. The general-to-specific methodology is shown to have size near nominal size and high power. Sala-i-Martin's method and the general-to-specific method are then applied to the actual data from Sala-i-Martin's original study. The results are consistent with the Monte Carlo results and suggest that only a few of the 61 potential determinants of growth matter.

Keywords: specification search, extreme-bounds analysis, general-to-specific specification search, LSE econometric methodology, growth, cross-country growth regressions, multiple imputation

JEL Classification: C4, C8, O4

Suggested Citation

Hoover, Kevin D. and Perez, Stephen J., Evaluating Specification Search in Cross-Country Growth Regressions: Extreme Bounds vs. General-to-Specific Methodologies (September 6, 2001). Available at SSRN: https://ssrn.com/abstract=285145 or http://dx.doi.org/10.2139/ssrn.285145

Kevin D. Hoover (Contact Author)

Duke University - Departments of Economics and Philosophy ( email )

213 Social Sciences Building
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Stephen J. Perez

California State University, Sacramento - Department of Economics ( email )

6000 J Street
Sacramento, CA 95819-6082
United States
916-278-6919 (Phone)
916-278-5768 (Fax)