Conclusions
The large literature on national policies and growth established some statistical association between national economic policies and growth. I confirm that association in this paper and I show how it could have reasonable theoretical foundations.
However, I find that the associations seem to depend on extreme values of the policy variables, that the results are not very robust to different econometric methods or introducing initial income, and that a levels regression does not show any effect of policies after controlling for institutions (both instrumented for possible endogeneity). These results are consistent with other theoretical models that predict only modest effects of national policies, depending on model parameters, and show nonlinear effects of tax-cum-subsidy schemes. They are also consistent with the view that the residual A explains most of income and growth differences, and it likely reflects deep-seated institutions that are not very amenable to change in the short run.References
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