An integrated panel data approach to modelling economic growth

Empirical growth analysis is plagued with three problems – variable selection, parameter heterogeneity and cross-sectional dependence – which are addressed independently from each other in most studies. This study is to propose an integrated framework that allows for parameter heterogeneity and cross-sectional error dependence, while simultaneously performing variable selection. We derive the asymptotic properties of the estimator, and apply the framework to a dataset of 89 countries over the period from 1960 to 2014. Our results support the “optimistic” conclusion of Sala-I-Martin (1997), and also reveal some cross-country patterns not found previously.