Mastering panel metrics: causal impact of democracy on growth
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Citation (published version)Ivan Fernandez-Val, Shuowen Chen, Victor Chernozhukov. "Mastering Panel 'Metrics: Causal Impact of Democracy on Growth." AEA Papers and Proceedings, vol. 109. pp. 77-82. https://doi.org/10.1257/pandp.20191071
We revisit the panel data analysis of Acemoglu et al. (forthcoming) on the relationship between democracy and economic growth using state-of-the-art econometric methods. We argue that panel data settings are high-dimensional, resulting in estimators to be biased to a degree that invalidates statistical inference. We remove these biases by using simple analytical and sample-splitting methods, and thereby restore valid statistical inference. We find that debiased fixed effects and Arellano-Bond estimators produce higher estimates of the long-run effect of democracy on growth, providing even stronger support for the key hypothesis of Acemoglu et al.
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