Mastering Panel Metrics: Causal Impact of Democracy on Growth

Shuowen Chen, Victor Chernozhukov and Ivan Fernandez-Val (ivanf@bu.edu)
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Shuowen Chen: Institute for Fiscal Studies

No CWP33/19, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: The relationship between democracy and economic growth is of long standing interest. We revisit the panel data analysis of this relationship by Acemoglu et al. (forthcoming) using state of the art econometric methods. We argue that this and lots of other panel data settings in economics are in fact high-dimensional, resulting in principal estimators – the ?xed e?ects (FE) and Arellano-Bond (AB) estimators – to be biased to the degree that invalidates statistical inference. We can however remove these biases by using simple analytical and sample-splitting methods, and thereby restore valid statistical inference. We ?nd that the debiased FE and AB estimators produce substantially higher esti-mates of the long-run e?ect of democracy on growth, providing even stronger support for the key hypothesis in Acemoglu et al. (forthcoming). Given the ubiquitous nature of panel data, we conclude that the use of debiased panel data estimators should substantially improve the quality of empirical inference in economics.

Date: 2019-06-12
New Economics Papers: this item is included in nep-gro and nep-soc
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Mastering Panel Metrics: Causal Impact of Democracy on Growth (2019)
Working Paper: Mastering Panel 'Metrics: Causal Impact of Democracy on Growth (2019)
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