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

Jean-Bernard Chatelain and Kirsten Ralf

MPRA Paper from University Library of Munich, Germany

Abstract: In multiple regressions, 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 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 "�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; Parameter In�flation Factor; Growth; Foreign Aid (search for similar items in EconPapers)
JEL-codes: C12 C52 F35 P45 (search for similar items in EconPapers)
Date: 2012-11-08
New Economics Papers: this item is included in nep-dev, nep-ecm and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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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 (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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