## Sharp Instrument: A Stab at Identifying the Causes of Economic Growth

_IMF Working Papers, May 21, 2018_

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## Bibliographic details
- Authors: Reda Cherif, Fuad Hasanov, Lichen Wang
- Published: May 21, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484357170.001

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### Authors and publication
- By Reda Cherif, Fuad Hasanov, Lichen Wang
- May 21, 2018
- IMF Working Papers, Working Paper No. 2018/117
- Pages: 24
- Volume: 2018
- Issue: 117
- DOI: https://doi.org/10.5089/9781484357170.001
- Stock No: WPIEA2018117
- ISBN: 9781484357170
- ISSN: 1018-5941

### Research objective and methodology
- Objective: Shed new light on the determinants of growth by addressing the blunt and weak instrument problems in the empirical growth literature.
- Instrumental strategy:
  - Propose average values of the same endogenous variable in neighboring countries as an instrument for each endogenous variable.
  - Characterize these instruments as variable-specific and time-varying—namely, “sharp”—and strong.

### Key findings
- Export sophistication is identified as the only robust determinant of growth among the standard growth determinants examined.
- Other standard determinants considered include:
  - Human capital
  - Trade
  - Financial development
  - Institutions
- Implication from results:
  - Other growth determinants may be important to the extent they help improve export sophistication.

### Keywords and subject coverage
- Subject: Econometric analysis, Economic sectors, Education, Estimation techniques, Exports, International trade, Manufacturing, National accounts, Real exports
- Keywords: blunt instrument, coefficient estimate, Economic growth, Estimation techniques, export orientation, export sophistication, Exports, growth rate, IV estimation, manufactures export, Manufacturing, Productivity, Real exports, Sub-Saharan Africa, t-test size, test p-value, Weak instrument, WP

### Core takeaway for policy and research
- Focus on policies and interventions that improve export sophistication, as this characteristic is found to be the robust driver of economic growth in the authors’ empirical framework.
- Use of neighboring-country averages as variable-specific, time-varying instruments provides a methodological approach to mitigate blunt and weak instrument problems in growth regressions.

*Source: IMF Working Paper “Sharp Instrument: A Stab at Identifying the Causes of Economic Growth” by Reda Cherif, Fuad Hasanov, and Lichen Wang (May 21, 2018), Working Paper No. 2018/117.*

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_Source: https://www.imf.org/en/publications/wp/issues/2018/05/21/sharp-instrument-a-stab-at-identifying-the-causes-of-economic-growth-45879_