Aggregation versus Heterogeneity in Cross-Country Growth Empirics

Markus Eberhardt and Francis Teal

No 2010-32, CSAE Working Paper Series from Centre for the Study of African Economies, University of Oxford

Abstract: The cross-country growth literature commonly uses aggregate economy datasets such as the Penn World Table (PWT) to estimate homogeneous production function or convergence regression models. Against the background of a dual economy framework this paper investigates the potential bias arising when aggregate economy data instead of sectoral data is adopted in macro production function regressions. Using a unique World Bank dataset we estimate production functions in agriculture and manufacturing for a panel of 41 developing and developed countries (1963-1992). We employ novel empirical methods which can accommodate technology heterogeneity, variable nonstationarity and the breakdown of the standard cross-section independence assumption. We then investigate the potential for biased estimates due to aggregation and empirical misspecification, relying on both theory and Monte Carlo simulations. We confirm substantial bias in the technology coefficients using data for a stylised aggregate economy made up of agricultural and manufacturing sectors and a matched PWT dataset.

JEL-codes: C23 O11 O47 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-dev, nep-ecm and nep-eff
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Aggregation versus Heterogeneity in Cross-Country Growth Empirics (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:csa:wpaper:2010-32

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