Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 3/2011: Robust Growth Determinants.

Gernot Doppelhofer () and Melvyn Weeks ()
Additional contact information
Gernot Doppelhofer: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Melvyn Weeks: University of Cambridge, Postal: Faculty of Economics and Clare College, University of Cambridge, , Cambridge CB3 9DD, , UK

Abstract: This paper investigates the robustness of determinants of economic growth in the presence of model uncertainty, parameter heterogeneity and outliers. The robust model averaging approach introduced in the paper uses a flexible and parsi- monious mixture modeling that allows for fat-tailed errors compared to the normal benchmark case. Applying robust model averaging to growth determinants, the paper finds that eight out of eighteen variables found to be significantly related to economic growth by Sala-i-Martin et al. (2004) are sensitive to deviations from benchmark model averaging. For example, the GDP shares of mining or government consumption, are no longer robust or economically significant once deviations from the normal benchmark assumptions are allowed. The paper identifies outlying observations { most notably Botswana { in explaining economic growth in a cross-section of countries.

Keywords: Determinants of Economic Growth; Robust Model Averaging; Heteroscedasticity; Outliers; Mixture models.

JEL-codes: C11; C21; C52; O47; O50

40 pages, February 7, 2011

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