Problems with Growth Regressions

"I have long been skeptical about how much one can learn from cross-country growth regressions. In the early 1990s, I wrote one paper in that literature, coauthored with David Romer and David Weil, and to my surprise, it turned out to be my most cited paper by a very large margin. In a subsequent paper, The Growth of Nations, I tried to spell out the reasons for my skepticism. I emphasized three problems, which I called the simultaneity problem (it is hard to disentangle cause and effect), the multicollinearity problem (most of the potential determinants of growth are correlated with each other and imperfectly measured, making it hard to figure out which is the true determinant), and the degrees-of-freedom problem (there are more plausible hypotheses than data points). To some extent, the subsequent literature addresses some of my concerns. For example, there is more attention now to trying to find exogenous differences across countries, but the task is inherently difficult, so one should not expect to find definitive answers about the causes of growth from this literature."

-Greg Mankiw

Related;
I Just Ran Two Million Regressions

I Just Ran Four Million Regressions

We Just Averaged over Two Trillion Cross-Country Growth Regressions

Regressions: Why Are Economists Obessessed with Them?

The Quest Continues;

Growth regressions: the short. Growth regressions have proved a very useful extended investigation into the correlates of medium- to long-run growth. From the original growth regressions, which used single cross sections with 20- to 30-year growth rates and ordinary least squares, to the latest use of panel data with 5- and 10-year growth rates and more sophisticated estimation techniques, the growth regression literature has added to the stock of knowledge about the correlates of growth with various policy and nonpolicy variables. However, in the end, as an instrument for informing policy, regressions have suffered five exhausting, if not mortal, wounds.

First, growth regressions never satisfactorily resolved the "symptoms versus syndromes" problem...

Second, growth regressions were widely seen as producing estimates of gains from policy reform that were orders of magnitude larger than the microeconomic estimates of those gains—without any particularly convincing economic explanation...

Third, growth regressions have a tough time dealing with the huge differences in country experiences...

Fourth, growth regressions cannot predict turning points— either accelerations or decelerations—and we know that developing country growth rates have these turning points...

Fifth—and perhaps most disillusioning—it was felt (perhaps a bit unfairly but nevertheless widely) that growth regressions did not help policymakers anticipate either the disappointments or the surprises of the experiences of the 1990s (World Bank, 2005)...