(), Henry Ohlsson
() and Peter Skogman Thoursie
Jonas Agell: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Henry Ohlsson: Dep. of Economics, Uppsala University, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 UPPSALA, Sweden
Peter Skogman Thoursie: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Abstract: In a recent article Stefan Fölster and Magnus Henrekson  argue that “…the more the econometric problems that are addressed, the more robust the relationship between government size and economic growth appears”. But in failing to control for simultaneity in a valid manner the regressions reported by Fölster/Henrekson are flawed. Moreover, using theoretically valid instruments we find that the estimated partial correlation between size of the public sector and economic growth is statistically insignificant and highly unstable across specifications. A policy-maker who wants to promote growth is well-advised to look for other evidence than cross-country growth regressions.
13 pages, November 6, 2003
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