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How Reliable is Pooled Analysis in Political Economy? The Globalization–Welfare State Nexus Revisited Bernhard Kittel and Hannes Winner 02 / 3 Max-Planck-Institut für Gesellschaftsforschung Paulstrasse 3 50676 Köln Germany Telephone 0221 / 2767 -0 Fax 0221 / 2767-555 MPIfG Discussion Paper 02/3 E-Mail info@mpi-fg-koeln.mpg.de ISSN 0944–2073 Website www.mpi-fg-koeln.mpg.de May 2002 2 MPIfG Discussion Paper 02/3 Abstract Panel data analysis has become very popular in comparative political economy. However, in order to draw meaningful inferences from such data, one has to ad- dress specification and estimation issues carefully. This paper aims to demon- strate various pitfalls that typically occur in applied empirical work. To illustrate this, we refer to the debate on the globalization-welfare state nexus. We re- examine a model by Garrett and Mitchell (2001), a leading study in this regard. Utilizing a data set of 17 OECD countries and the time period 1961 to 1993, they find evidence that globalization and partisan composition have a significant im- pact on the extent of public activity. However, because they apply a dynamic specification in levels, they do not adequately take into account both the dynamic and spherical nature of the data. In contrast, we propose an autoregressive model in first differences that is shown to perform well in statistical terms. Fur- ther, we explicit