On the Use of Panel Data Methods with Cross-Country Data

The recent work on cross-country regressions can be compared to looking at "a black cat in a dark room". Whether or not all this work has accomplished anything on the substantive economic issues is a moot question. But the search for "a black cat" has led to some progress on the econometric front. The purpose of this paper is to comment on this progress. We discuss the problems with the use of cross-country panel data in the context of two problems: The analysis of economic growth and that of the purchasing power parity (PPP) theory.