Jul 3, 2013 Report No：13-12
This paper investigates the determinants of growth in the Asian developing economies. We use Bayesian model averaging (BMA) in the context of a dynamic panel data growth regression to overcome the uncertainty over the choice of control variables. In addition, we use a Bayesian algorithm to analyze a large number of competing models. Among the explanatory variables, we include a non-linear function of inflation that allows for threshold effects. We use an unbalanced panel data set of 27 Asian developing countries over the period 1980–2009. Our empirical evidence on the determinants of growth suggests that an economy’s investment ratio and trade openness are positively correlated to growth, whereas government consumption expenditure is negatively correlated. Further, our empirical results indicate a substantial probability that inflation impedes economic growth when it exceeds 5.43%. We also find no evidence of conditional convergence or divergence.
|Keywords||Determinants of Growth, Bayesian Model Averaging, Panel Data Model, Inflation Threshold|