Why We Learn Nothing from Regressing Economic Growth on Policies

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. [PUBLICATION ABSTRACT]