Spurious Regressions and Near-Multicollinearity, with an Application to Aid, Policies and Growth

Jean-Bernard Chatelain and Kirsten Ralf

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Explanatory variables with simple correlation coefficients with the dependent variable below 0.1 in absolute value (such as aid with economic growth) may have very large and statistically significant estimated parameters in multiple regressions, which are unifortunately "outliers driven" or 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 "Botswana outliers driven" Burnside and Dollar [2000] article which found that aid had an effect on growth only for countries achieving "good" macroeconomic policies

Keywords: Near-Multicollinearity; student t-statistic; spurious regressions; Ceteris paribus; classical suppressor; parameter inflation factor; growth; foreign aid (search for similar items in EconPapers)
JEL-codes: C12 O19 P45 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2012-11
New Economics Papers: this item is included in nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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http://mse.univ-paris1.fr/pub/mse/CES2012/12078.pdf (application/pdf)

Related works:
Journal Article: Spurious regressions and near-multicollinearity, with an application to aid, policies and growth (2014)
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 (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)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:12078

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