Spurious regressions and near-multicollinearity, with an application to aid, policies and growth

Jean-Bernard Chatelain and Kirsten Ralf

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Abstract: In multiple regressions, explanatory variables with simple correlation coefficients with the dependent variable below 0.1 in absolute value (such as aid/gross domestic product (GDP) with GDP growth) face a problem of parameter identification. They may have very large, statistically significant, estimated parameters which are unfortunately "outliers driven" and spurious. This is obtained by including another regressor which is highly correlated with the initial regressor, such as a lag, a square or interaction terms of this regressor. The analysis is applied on the "Gambia and Botswana outliers driven" Burnside and Dollar (2000) article which found that aid/GDP had an effect on growth only for countries achieving "good" macroeconomic policies.

Keywords: Spurious regressions; Parameter identification problem; Hypothesis testing; Unstable conditional independence; Near-multicollinearity; Aid-growth relationship (search for similar items in EconPapers)
Date: 2014-03
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Citations: View citations in EconPapers (5)

Published in Journal of Macroeconomics, 2014, 39 (Part A), pp.85-96. ⟨10.1016/j.jmacro.2013.11.003⟩

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Related works:
Journal Article: Spurious regressions and near-multicollinearity, with an application to aid, policies and growth (2014)
Working Paper: Spurious regressions and near-multicollinearity, with an application to aid, policies and growth (2014)
Working Paper: Spurious Regressions and Near-Multicollinearity, with an Application to Aid, Policies and Growth (2012)
Working Paper: Spurious Regressions and Near-Multicollinearity, with an Application to Aid, Policies and Growth (2012)
Working Paper: Spurious Regressions and Near-Multicollinearity, with an Application to Aid, Policies and Growth (2012)
Working Paper: Spurious Regressions and Near-Multicollinearity, with an Application to Aid, Policies and Growth (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00978147

DOI: 10.1016/j.jmacro.2013.11.003

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