Why there’s no “GrowthGate:” Frustration vs. Chicanery in Explaining Growth

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Despite Climategate, even a superficial reading seems to indicate that there is enough evidence for effects of man-made activity on the climate. Surprisingly, there is a lot less evidence for effects of man-made activity on something that actually is completely man-made: the rate of economic growth in each country.

I had this frustrating thought as I was reading an important new paper, “Determinants of Economic Growth: Will Data Tell?” [1]

The paper gives a conclusive and resounding answer to the question in the title: no. 

It has taken economists a lot of hard work to attain this level of sublime ignorance. There were three steps in the the great History of Evolving Cluelessness:

  1. Economists spent the past two decades trying every possible growth determinant in sight. They found evidence for 145 different variables (according to an article published in 2005). That was a bit too many in a sample of only about one hundred countries. What was happening is there would be evidence for Determinants A, B, C, and D when tried one at a time to explain growth. But the evidence for A disappeared when you also controlled for some combination of B, C, and D, and/or vice versa. (Interestingly enough, foreign aid never even merited inclusion in the list of 145 variables.)
  2. The Columbia economist Xavier Sala-i-Martin and co-authors ran millions of regressions on all possible combinations of 7 variables out of the many possible determinants of growth. Skipping a lot of technical detail, they essentially averaged out the millions of regressions to see which determinants had evidence for them in most regressions. There was hope: some were robust!  For example, the idea that malaria prevalence hinders growth found consistent support.
  3. This new paper by Ciccone and Jarocinski found that every time the growth data are revised, or if the sample is changed to another equally plausible one, the results vanish on the “robust” variables and new “robust” variables appear. Goodbye, malaria, hello, democracy. Except the new “robust” determinants are no longer believable if minor differences between equally plausible samples changes what is robust. So nothing is robust.

 There are two possible ways to describe what had happened over the past two decades:

  1. The growth research was at least partially fraudulent, in that we researchers were searching among many different econometric exercises till we got the “determinants of growth” we wanted all along.
  2. There was a good faith effort by us researchers to test different theories of growth, which led to some results. We didn’t realize until later that these results were not robust.

Description (1) would be a “GrowthGate,” but since so many people would be guilty (of "data mining"), and since we really can’t tell for any individual study or researcher whether it was (1) or (2), “GrowthGate” never became a story.

The only guilty ones might be those who continue to run growth econometrics today without acknowledging that our Three-Act Tragi-Comedy is so OVER. Like for example, I wonder a little why pay attention to some hot new study that claims to have finally found that big POSITIVE effect of aid on growth, or POSITIVE anything on growth.

thomas_friedman

Of course, the policy world abhors the great Vacuum of Ignorance, which opens the door to empty pontificators like a certain bestselling writer of books about Flat Worlds, in which You Cannot Have Growth Unless You Do Precisely What I Tell You.

Thank goodness, many economists did good economics before the Dark Age of  Growth Econometrics, and many economists have still managed to do it during and after. Economics is so much more,  even if the cross-country econometric data refuse to tell us The Exact Determinants of Growth.

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[1] By Antonio Ciccone and Marek Jarocinski, ICREA-Universitat Pompeu Fabra; and European Central Bank.

[2] Durlauf, Steven N., Paul A. Johnson, and Jonathan R. W. Temple, 2005, “Growth Econometrics,” in Philippe Aghion and Steven N. Durlauf, eds., Handbook of Economic Growth, North-Holland.

[3] Sala-i-Martin, Xavier, Gernot Doppelhofer, and Ronald I. Miller, 2004, “Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach,” The American Economic Review, 94(4):813–835.