Working Paper 130


In this paper, I revisit the controversy over the fundamental sources of comparative development. In contrast to much of the previous literature, my focus is on the appropriate specification of the empirical strategy.

Using a finite mixture model approach and Monte Carlo simulations, I demonstrate that the standard linear estimation strategy may be mis-specified and as a result is likely to obscure the true effects of the variables used to explain cross-country income differences.

My findings could potentially reconcile apparently conflicting results from the existing literature on the role of geography and institutions in comparative development.

Thomas K.J. McDermott

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