Has the Lucas Paradox been fully explained?

Azemar, Celine and Desbordes, Rodolphe (2013) Has the Lucas Paradox been fully explained? Economic Letters, 121 (2). pp. 183-187. ISSN 0165-1765

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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.