Predicting Economic Growth: Which Variables Matter

Abstract

In this chapter, we delve deeper into our findings in Chap. 4. We highlight how machine learning algorithms can highlight variables that have little predictive value relative to others. This machine learning technology can therefore help highlight the most salient growth ``theory'' among many. We also notice that the most predictively salient variables affect economic growth in a way that suggest equilibrium shifts in strategic models rather than smooth neoclassical patterns. Thus, we argue that machine learning approaches can help researchers identify more appropriate theoretical modeling techniques. Last, we suggest that some variables are better policy levers than others.