Handling Multicollinearity Problems in Indonesia's Economic Growth Regression Modeling Based on Endogenous Economic Growth Theory

One of the multiple linear regression applications in economics is Indonesia’s economic growth model based on theory endogenous growth. Endogenous development classical which cannot explain how economy grows long run. The used many independent variables, caused multicollinearity problems. In this study, using least-squares estimation method and some methods to handle problem was implemented. Variable selection (backward, forward, stepwise), principal component (PCR), partial least square (PLS), regularization (Ridge, Lasso, Elastic Net) were applied solve problem. with backward, stepwise has not been able overcome multicollinearity. contrast, Principal Component Regression, PLS regression, overcame We "leave one out cross-validation" (LOOCV) determine best for handling problems smallest mean error (MSE). Based MSE value, Lasso method.