Has the Lucas Paradox been fully explained?
2013, Economics Letters, 121(2), pp.183-187
Abstract
Alfaro, Kalemli-Ozcan, and Volosovych (2008) argue that accounting for differences in institutional quality makes the Lucas Paradox disappear. We show that their key finding is driven by the presence of outliers. Once we control for them, we find that the Lucas Paradox remains.