Weak Instruments in Growth Regressions : Implications for Recent Cross-Country Evidence on Inequality and Growth

This paper revisits four recent cross-country empirical studies on the effects of inequality on growth. All four studies report strongly significant negative effects, using the popular system generalized method of moments estimator that is frequent...

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Main Author:	Kraay, Aart
Format:	Working Paper
Language:	English en_US
Published:	World Health Organization 2015
Subjects:	GROWTH RATES SIGNIFICANT RELATIONSHIP POINT ESTIMATE CAPITA INCOME POLITICAL ECONOMY CHANNEL ECONOMIC GROWTH SIGNIFICANT EFFECT DYNAMIC PANEL INCOME LAGGED GROWTH COUNTRY REGRESSIONS ECONOMIC REVIEW LAGGED LEVELS ECONOMICS LETTERS DEVELOPING COUNTRIES POLITICAL ECONOMY CROSS‐ COUNTRY DATA POLICY CIRCLES NEGATIVE RELATIONSHIP POLICY DISCUSSIONS POINT ESTIMATES EMPIRICAL GROWTH LITERATURE EMPIRICAL STUDIES ANNUAL GROWTH LOG INCOME INEQUALITY VARIABLES LAGGED VALUES CROSS‐COUNTRY DATA ENDOGENOUS VARIABLES EMPIRICAL LITERATURE INSTRUMENTS CROSS‐COUNTRY EVIDENCE REDISTRIBUTIVE EFFECTS STANDARD DEVIATION EMPIRICAL RESULTS ABSOLUTE VALUE PER CAPITA INCOME DEVELOPMENT ECONOMICS NEGATIVE GROWTH NEGATIVE IMPACT EMPLOYMENT EQUATIONS PANEL DATA SETS GROWTH EFFECT INEQUALITY MEASURES INCOME INEQUALITY SIGNIFICANCE LEVEL SIGNIFICANT NEGATIVE ECONOMETRICS ECONOMETRIC MODELS TRANSFERS EXPLANATORY VARIABLES PRODUCT GROWTH SPECIFICATION ECONOMIC RESEARCH POSITIVE RELATIONSHIP DEVELOPMENT RESEARCH CONSUMPTION HUMAN CAPITAL POLICIES ECONOMIC STUDIES SENSITIVITY ANALYSIS ESTIMATED COEFFICIENT DEPENDENT VARIABLE POLICY MAKERS MACROECONOMICS ERROR TERMS GROWTH LITERATURE INEQUALITY DATA NEGATIVE EFFECT COUNTRY‐SPECIFIC INCOME DISTRIBUTION LAGGED INEQUALITY ESTIMATED COEFFICIENTS CROSS‐ COUNTRY ERROR TERM REGRESSION SAMPLE COUNTRY DATA GROWTH EMPIRICS ECONOMICS EXPLANATORY POWER INEQUALITY MEASURE ECONOMIC INEQUALITY DATA SETS ECONOMIC DEVELOPMENT GROSS INCOME POSITIVE EFFECT GROWTH REGRESSIONS DATA SET GDP REDISTRIBUTIVE POLICIES GROWTH REGRESSION INCOME SHARES LONG‐RUN AVERAGE ANNUAL POLICY IMPLICATIONS GINI COEFFICIENT EMPIRICAL EVIDENCE POSITIVE GROWTH POLICY RESEARCH INCREASE GROWTH CROSS‐COUNTRY INCOME COEFFICIENT LAGGED CHANGES DEVELOPMENT POLICY INEQUALITY PUBLIC GOODS GROWTH
Online Access:	http://documents.worldbank.org/curated/en/2015/11/25462798/weak-instruments-growth-regressions-implications-recent-cross-country-evidence-inequality-growth http://hdl.handle.net/10986/23456

id	okr-10986-23456
recordtype	oai_dc
spelling	okr-10986-234562021-04-23T14:04:15Z Weak Instruments in Growth Regressions : Implications for Recent Cross-Country Evidence on Inequality and Growth Kraay, Aart GROWTH RATES SIGNIFICANT RELATIONSHIP POINT ESTIMATE CAPITA INCOME POLITICAL ECONOMY CHANNEL ECONOMIC GROWTH SIGNIFICANT EFFECT DYNAMIC PANEL INCOME LAGGED GROWTH COUNTRY REGRESSIONS ECONOMIC REVIEW LAGGED LEVELS ECONOMICS LETTERS DEVELOPING COUNTRIES POLITICAL ECONOMY CROSS‐ COUNTRY DATA POLICY CIRCLES NEGATIVE RELATIONSHIP POLICY DISCUSSIONS POINT ESTIMATES EMPIRICAL GROWTH LITERATURE EMPIRICAL STUDIES ANNUAL GROWTH LOG INCOME COUNTRY REGRESSIONS INEQUALITY VARIABLES LAGGED VALUES CROSS‐COUNTRY DATA INEQUALITY VARIABLES ENDOGENOUS VARIABLES EMPIRICAL LITERATURE INSTRUMENTS CROSS‐COUNTRY EVIDENCE REDISTRIBUTIVE EFFECTS STANDARD DEVIATION EMPIRICAL RESULTS ABSOLUTE VALUE PER CAPITA INCOME DEVELOPMENT ECONOMICS NEGATIVE GROWTH NEGATIVE IMPACT EMPLOYMENT EQUATIONS PANEL DATA SETS GROWTH EFFECT INEQUALITY MEASURES INCOME INEQUALITY SIGNIFICANCE LEVEL SIGNIFICANT NEGATIVE ECONOMETRICS ECONOMETRIC MODELS TRANSFERS EXPLANATORY VARIABLES PRODUCT GROWTH SPECIFICATION ECONOMIC RESEARCH POSITIVE RELATIONSHIP DEVELOPMENT RESEARCH CONSUMPTION HUMAN CAPITAL POLICIES ECONOMIC STUDIES SENSITIVITY ANALYSIS ESTIMATED COEFFICIENT DEPENDENT VARIABLE POLICY MAKERS MACROECONOMICS ERROR TERMS GROWTH LITERATURE DYNAMIC PANEL INEQUALITY DATA NEGATIVE EFFECT COUNTRY‐SPECIFIC INCOME DISTRIBUTION LAGGED INEQUALITY ESTIMATED COEFFICIENTS CROSS‐ COUNTRY ERROR TERM REGRESSION SAMPLE COUNTRY DATA GROWTH EMPIRICS ENDOGENOUS VARIABLES ECONOMICS EXPLANATORY POWER INEQUALITY MEASURE HUMAN CAPITAL ECONOMIC INEQUALITY DATA SETS ECONOMIC DEVELOPMENT GROSS INCOME POSITIVE EFFECT GROWTH REGRESSIONS DATA SET GDP REDISTRIBUTIVE POLICIES GROWTH REGRESSIONS GROWTH REGRESSION INCOME SHARES LONG‐RUN GROWTH REGRESSION AVERAGE ANNUAL POLICY IMPLICATIONS GINI COEFFICIENT EMPIRICAL EVIDENCE POSITIVE GROWTH POLICY RESEARCH INCREASE GROWTH ERROR TERM CROSS‐COUNTRY LAGGED INEQUALITY ECONOMIC GROWTH INCOME COEFFICIENT LAGGED CHANGES DEVELOPMENT POLICY INEQUALITY PUBLIC GOODS EXPLANATORY VARIABLES GINI COEFFICIENT GROWTH This paper revisits four recent cross-country empirical studies on the effects of inequality on growth. All four studies report strongly significant negative effects, using the popular system generalized method of moments estimator that is frequently used in cross-country growth empirics. This paper shows that the internal instruments relied on by this estimator in these inequality-and-growth regressions are weak, and that weak instrument-consistent confidence sets for the effect of inequality on growth include a wide range of positive and negative values. This suggests that strong conclusions about the effect of inequality on growth— in either direction—cannot be drawn from these studies. This paper also systematically explores a wide range of alternative sets of internal instruments, and finds that problems of weak instruments are pervasive across these alternatives. More generally, the paper illustrates the importance of documenting instrument strength, basing inferences on procedures that are robust to weak instruments, and considering alternative instrument sets when using the system generalized method of moments estimator for cross-country growth empirics. 2015-12-18T20:52:15Z 2015-12-18T20:52:15Z 2015-11 Working Paper http://documents.worldbank.org/curated/en/2015/11/25462798/weak-instruments-growth-regressions-implications-recent-cross-country-evidence-inequality-growth http://hdl.handle.net/10986/23456 English en_US Policy Research Working Paper;No. 7494 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Health Organization Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	GROWTH RATES SIGNIFICANT RELATIONSHIP POINT ESTIMATE CAPITA INCOME POLITICAL ECONOMY CHANNEL ECONOMIC GROWTH SIGNIFICANT EFFECT DYNAMIC PANEL INCOME LAGGED GROWTH COUNTRY REGRESSIONS ECONOMIC REVIEW LAGGED LEVELS ECONOMICS LETTERS DEVELOPING COUNTRIES POLITICAL ECONOMY CROSS‐ COUNTRY DATA POLICY CIRCLES NEGATIVE RELATIONSHIP POLICY DISCUSSIONS POINT ESTIMATES EMPIRICAL GROWTH LITERATURE EMPIRICAL STUDIES ANNUAL GROWTH LOG INCOME COUNTRY REGRESSIONS INEQUALITY VARIABLES LAGGED VALUES CROSS‐COUNTRY DATA INEQUALITY VARIABLES ENDOGENOUS VARIABLES EMPIRICAL LITERATURE INSTRUMENTS CROSS‐COUNTRY EVIDENCE REDISTRIBUTIVE EFFECTS STANDARD DEVIATION EMPIRICAL RESULTS ABSOLUTE VALUE PER CAPITA INCOME DEVELOPMENT ECONOMICS NEGATIVE GROWTH NEGATIVE IMPACT EMPLOYMENT EQUATIONS PANEL DATA SETS GROWTH EFFECT INEQUALITY MEASURES INCOME INEQUALITY SIGNIFICANCE LEVEL SIGNIFICANT NEGATIVE ECONOMETRICS ECONOMETRIC MODELS TRANSFERS EXPLANATORY VARIABLES PRODUCT GROWTH SPECIFICATION ECONOMIC RESEARCH POSITIVE RELATIONSHIP DEVELOPMENT RESEARCH CONSUMPTION HUMAN CAPITAL POLICIES ECONOMIC STUDIES SENSITIVITY ANALYSIS ESTIMATED COEFFICIENT DEPENDENT VARIABLE POLICY MAKERS MACROECONOMICS ERROR TERMS GROWTH LITERATURE DYNAMIC PANEL INEQUALITY DATA NEGATIVE EFFECT COUNTRY‐SPECIFIC INCOME DISTRIBUTION LAGGED INEQUALITY ESTIMATED COEFFICIENTS CROSS‐ COUNTRY ERROR TERM REGRESSION SAMPLE COUNTRY DATA GROWTH EMPIRICS ENDOGENOUS VARIABLES ECONOMICS EXPLANATORY POWER INEQUALITY MEASURE HUMAN CAPITAL ECONOMIC INEQUALITY DATA SETS ECONOMIC DEVELOPMENT GROSS INCOME POSITIVE EFFECT GROWTH REGRESSIONS DATA SET GDP REDISTRIBUTIVE POLICIES GROWTH REGRESSIONS GROWTH REGRESSION INCOME SHARES LONG‐RUN GROWTH REGRESSION AVERAGE ANNUAL POLICY IMPLICATIONS GINI COEFFICIENT EMPIRICAL EVIDENCE POSITIVE GROWTH POLICY RESEARCH INCREASE GROWTH ERROR TERM CROSS‐COUNTRY LAGGED INEQUALITY ECONOMIC GROWTH INCOME COEFFICIENT LAGGED CHANGES DEVELOPMENT POLICY INEQUALITY PUBLIC GOODS EXPLANATORY VARIABLES GINI COEFFICIENT GROWTH
spellingShingle	GROWTH RATES SIGNIFICANT RELATIONSHIP POINT ESTIMATE CAPITA INCOME POLITICAL ECONOMY CHANNEL ECONOMIC GROWTH SIGNIFICANT EFFECT DYNAMIC PANEL INCOME LAGGED GROWTH COUNTRY REGRESSIONS ECONOMIC REVIEW LAGGED LEVELS ECONOMICS LETTERS DEVELOPING COUNTRIES POLITICAL ECONOMY CROSS‐ COUNTRY DATA POLICY CIRCLES NEGATIVE RELATIONSHIP POLICY DISCUSSIONS POINT ESTIMATES EMPIRICAL GROWTH LITERATURE EMPIRICAL STUDIES ANNUAL GROWTH LOG INCOME COUNTRY REGRESSIONS INEQUALITY VARIABLES LAGGED VALUES CROSS‐COUNTRY DATA INEQUALITY VARIABLES ENDOGENOUS VARIABLES EMPIRICAL LITERATURE INSTRUMENTS CROSS‐COUNTRY EVIDENCE REDISTRIBUTIVE EFFECTS STANDARD DEVIATION EMPIRICAL RESULTS ABSOLUTE VALUE PER CAPITA INCOME DEVELOPMENT ECONOMICS NEGATIVE GROWTH NEGATIVE IMPACT EMPLOYMENT EQUATIONS PANEL DATA SETS GROWTH EFFECT INEQUALITY MEASURES INCOME INEQUALITY SIGNIFICANCE LEVEL SIGNIFICANT NEGATIVE ECONOMETRICS ECONOMETRIC MODELS TRANSFERS EXPLANATORY VARIABLES PRODUCT GROWTH SPECIFICATION ECONOMIC RESEARCH POSITIVE RELATIONSHIP DEVELOPMENT RESEARCH CONSUMPTION HUMAN CAPITAL POLICIES ECONOMIC STUDIES SENSITIVITY ANALYSIS ESTIMATED COEFFICIENT DEPENDENT VARIABLE POLICY MAKERS MACROECONOMICS ERROR TERMS GROWTH LITERATURE DYNAMIC PANEL INEQUALITY DATA NEGATIVE EFFECT COUNTRY‐SPECIFIC INCOME DISTRIBUTION LAGGED INEQUALITY ESTIMATED COEFFICIENTS CROSS‐ COUNTRY ERROR TERM REGRESSION SAMPLE COUNTRY DATA GROWTH EMPIRICS ENDOGENOUS VARIABLES ECONOMICS EXPLANATORY POWER INEQUALITY MEASURE HUMAN CAPITAL ECONOMIC INEQUALITY DATA SETS ECONOMIC DEVELOPMENT GROSS INCOME POSITIVE EFFECT GROWTH REGRESSIONS DATA SET GDP REDISTRIBUTIVE POLICIES GROWTH REGRESSIONS GROWTH REGRESSION INCOME SHARES LONG‐RUN GROWTH REGRESSION AVERAGE ANNUAL POLICY IMPLICATIONS GINI COEFFICIENT EMPIRICAL EVIDENCE POSITIVE GROWTH POLICY RESEARCH INCREASE GROWTH ERROR TERM CROSS‐COUNTRY LAGGED INEQUALITY ECONOMIC GROWTH INCOME COEFFICIENT LAGGED CHANGES DEVELOPMENT POLICY INEQUALITY PUBLIC GOODS EXPLANATORY VARIABLES GINI COEFFICIENT GROWTH Kraay, Aart Weak Instruments in Growth Regressions : Implications for Recent Cross-Country Evidence on Inequality and Growth
relation	Policy Research Working Paper;No. 7494
description	This paper revisits four recent cross-country empirical studies on the effects of inequality on growth. All four studies report strongly significant negative effects, using the popular system generalized method of moments estimator that is frequently used in cross-country growth empirics. This paper shows that the internal instruments relied on by this estimator in these inequality-and-growth regressions are weak, and that weak instrument-consistent confidence sets for the effect of inequality on growth include a wide range of positive and negative values. This suggests that strong conclusions about the effect of inequality on growth— in either direction—cannot be drawn from these studies. This paper also systematically explores a wide range of alternative sets of internal instruments, and finds that problems of weak instruments are pervasive across these alternatives. More generally, the paper illustrates the importance of documenting instrument strength, basing inferences on procedures that are robust to weak instruments, and considering alternative instrument sets when using the system generalized method of moments estimator for cross-country growth empirics.
format	Working Paper
author	Kraay, Aart
author_facet	Kraay, Aart
author_sort	Kraay, Aart
title	Weak Instruments in Growth Regressions : Implications for Recent Cross-Country Evidence on Inequality and Growth
title_short	Weak Instruments in Growth Regressions : Implications for Recent Cross-Country Evidence on Inequality and Growth
title_full	Weak Instruments in Growth Regressions : Implications for Recent Cross-Country Evidence on Inequality and Growth
title_fullStr	Weak Instruments in Growth Regressions : Implications for Recent Cross-Country Evidence on Inequality and Growth
title_full_unstemmed	Weak Instruments in Growth Regressions : Implications for Recent Cross-Country Evidence on Inequality and Growth
title_sort	weak instruments in growth regressions : implications for recent cross-country evidence on inequality and growth
publisher	World Health Organization
publishDate	2015
url	http://documents.worldbank.org/curated/en/2015/11/25462798/weak-instruments-growth-regressions-implications-recent-cross-country-evidence-inequality-growth http://hdl.handle.net/10986/23456
_version_	1764453892283695104

Weak Instruments in Growth Regressions : Implications for Recent Cross-Country Evidence on Inequality and Growth

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