Why We Learn Nothing from Regressing Economic Growth on Policies

Abstract

Government use policy to achieve certain outcomes. Sometimes the

desired ends are worthwhile, and sometimes they are pernicious.

Cross-country regressions have been the tool of choice in assessing

the effectiveness of policies and the empirical relevance of these two

diametrically opposite views of government behavior. When government

policy responds systematically to economic or political objectives,

the standard growth regression in which economic growth (or any

other performance indicator) is regressed on policy tells us nothing

about the effectiveness of policy and whether government motives

are good or bad.