You First Encountered Growth Regression in Your Intermediate Macroeconomics Course

Essay

You first encountered growth regression in your intermediate macroeconomics course ("beta-convergence regressions"), that is, conditionally on some initial condition in per capita income, different authors tried to find the determinants of growth. Since growth is a long-run phenomenon, various studies collected data for a panel of numerous countries using 10-year averages, over a time period stretching from 1960 to 2005. For example, a balanced panel might consist of 50 or so odd countries for the time periods 1960-1970, 1971-1980, …, 2000-2005. Instead of using two-way fixed effects (entity fixed effects and time fixed)authors often only employed time fixed effects. Why do you think that is? What sort of information would be lost if these authors employed entity fixed effects as well?