Collinearity in growth regressions: The example of worker remittances

Thomas Ziesemer ()

No 20, UNU-MERIT Working Paper Series from United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology

Abstract: The sign of worker remittances in growth regressions is heavily disputed in the literature. Comparing two growth regressions with different signs for the remittance variable we show that collinearity with the lagged dependent variable might indicate that collinearity should be investigated comprehensively and might lead to a change in specifications which differ in the variance inflation factors (VIF). In our case the variance inflation factor for remittances depends on the use of a five or one-year lag of the lagged dependent. In the regression with a VIF below ten, the standard critical value, the sign of remittances is positive.

Keywords: Growth; Remittances (search for similar items in EconPapers)
JEL-codes: F24 O11 O15 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-fdg and nep-mig
Date: 2009
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:unumer:2009020

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