Which Reforms Work and under What Institutional Environment? Evidence from a New Data Set on Structural Reforms

Abstract

Abstract-Are structural reforms growth enhancing? Is the effectiveness of reforms constrained by a country's distance from the technology frontier or by its institutional environment? This paper takes a new and comprehensive look at these questions by employing a novel data set that includes several kinds of real (trade, agriculture, and networks) and financial (domestic finance, banking, securities, and capital account) reforms for an extensive list of developed and developing countries, going back to the early 1970s. First-pass evidence based on growth breaks analysis and on panel growth regressions suggests that on average, both real and financial sector reforms are positively associated with higher growth. However, on several occasions, botched reforms resulted in growth disasters. More important, the positive reform-growth relationship is shown to be highly heterogeneous and to be influenced by a country's constraints on the authority of the executive power and by its distance from the technology frontier. Finally, there is some evidence that crises, defined as severe growth downturns, are associated with subsequent reform upticks.

Financial Crises, Output Losses, and the Role of Structural Reforms

“…We leave this issue for further research. (2015) Average tariff rate Banking reform Prati et al (2013) Index of domestic financial liberalization including interest rate controls, credit controls, competition restrictions, state ownership, and quality of banking regulation and supervision Securities markets reform Prati et al (2013) Index of domestic financial liberalization pertaining to securities markets Capital account reform IMF (2015) Index of absence of restrictions on the capital account Current account reform IMF (2015) Indicator of how compliant a government is with its obligations under IMF Art. VIII to free from restrictions on the proceeds from international trade in goods and services…”

“…Indices on trade liberalization, capital account liberalization, and current account liberalization are obtained from IMF (). Information on domestic banking reform and securities market reform comes from Prati et al (). Indices of product market regulation and labor market regulation are retrieved from the OECD's online database.…”

“…Our choice for using one standard deviation is guided by the need to have enough episodes of structural reforms to assess their role using state dependence. domestic banking reform and securities market reform comes from Prati et al (2013). Indices of product market regulation and labor market regulation are retrieved from the OECD's online database.…”

Domestic financial reforms and crisis recoveries

“…Our empirical study is based on an annual data set for 42 countries that have comprehensive data over the years from 1975 to 2014. The structure reform indicators are from Abiad et al () and Prati, Onorato, and Papageorgiou (). Most of the macroeconomic variables are obtained from the World Development Indicator published by the World Bank.…”

Structural Reform and Productivity Growth in Emerging Europe and Central Asia

“…Nicoletti and Scarpetta (2003) show that reforms promoting private governance and competition boost multifactor productivity in various sectors in the (more developed) Organisation for Economic Co-operation and Development economies. Prati, Onorato, and Papageorgiu (2013) estimate the economic impact of reforms in agriculture, regulated industries, and international trade as well as financial liberalization, and find that this impact varies depending on the political system and the distance of the technological frontier. See also Syverson (2011) for a survey of internal and external factors that shape firm productivity.…”