Policymakers Beware: The Use and Misuse of Regressions in Explaining Economic Growth

Abstract

In recent years a voluminous literature relying on cross-national data sets and linear-regression analysis has confidently drawn major inferences about the causes of economic growth. This literature has not been confined to purely academic debates: its results have been used widely to influence economic policies in developing countries. But policymakers must be cautious in interpreting the results of these exercises. They are often clouded by serious methodological problems that are seldom discussed transparently. The purpose of this Policy Research Brief is to explore the limitations of the current growth-regression approach to formulating policies in the real world and pose some promising alternatives. (...)

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