Growth Regressions and What the Textbooks Don’t Tell You

Abstract

The paper discusses three econometric problems that are rarely given adequate discussion in textbooks: model uncertainty, parameter heterogeneity, and outliers. Leamer’s extreme bounds analysis can be adapted to address all three problems simultaneously. Two examples are presented based on an influential cross‐country growth paper by Levine and Renelt ( American Economic Review , vol. 82, 1992, pp. 942‐63).