16 Nov Control Variables – Growth Theory Channel
In continuation of the discussion on selecting control variables. If your dependent variable is social, economic or financial then it is closely related to economic activity (GDP), and since GDP is related to every other variable, so you can use the most common model of GDP to find controls for your model i.e. Growth theory.
Hence based on growth theory channel you can possibly use Labor and Capital under Solow growth model (Solow, 1965), Human capital (Education, Health and Sanitation, or HDI) (Mankiw, et al., 1992), under endogenous growth model and other variants like Governance, Infrastructure, Political Stability and Trade Openness. Within these proposed instruments, there are several proxies available, which can be used. Some examples are (Hanif & Arshed, 2016; Arshed et al., 2019; Inabo & Arshed, 2019)
Strategy 1A: Productivity approach
Other variant can be dividing all of other variables with labor to calculate per labor unit effect (productivity approach).
Your participation and contribution is welcomed.
Arshed, N., Anwar, A., Hassan, M. S., & Bukhari, S. (2019). Education stock and its implication for income inequality: The case of Asian economies. Review of Development Economics, 23(2), 1050-1066.
Hanif, N., & Arshed, N. (2016). Relationship between school education and economic growth: SAARC countries. International Journal of Economics and Financial Issues, 6(1), 294-300.
Inabo, O. A., & Arshed, N. (2019). Impact of health, water and sanitation as key drivers of economic progress in Nigeria. African Journal of Science, Technology, Innovation and Development, 11(2), 235-242.
Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A contribution to the empirics of economic growth. The Quarterly Journal of Economics, 107(2), 407–437.
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65–94.