An application of the Restricted Generalised Method of Moments on Mankiw-Romer-Weil (1992)

Mankiw, Romer and Weil (1992) empirically established the importance of human capital accumulation in explaining the cross-country income differences. However, their results have been critiqued by Acemoglu (2009) due to endogeneity concerns stemming from potential omitted variable bias. This work re-estimates the Mankiw, Romer and Weil (1992) equation using the instrumental variables method, where the future-time reference of languages is considered as an instrument for physical capital, while the Protestant missionary activities in 1923, along with the national primary school enrolment in 1900, are the instruments for human capital accumulation. We develop an algorithm for the restricted generalized method of moments to estimate our model and our findings indicate that the original Mankiw, Romer and Weil (1992) results are robust for the method of estimation and survive the endogeneity criticisms even when alternate indicators of human capital are considered. Additionally, our algorithm of restricted GMM would be useful for anyone who would like to obtain efficient estimators for any suitable research design in future