This paper investigates the impact of structural reforms on productivity growth. A panel analysis of 20 OECD countries finds that the impact of structural reforms on productivity growth may be weak or negative in the short run, possibly due to adjustment costs and the need for firms to learn how to operate in a less regulated and more competitive environment. In the long run, however, structural reforms are found to have significantly positive effects on productivity growth.
Ms. Ratna Sahay, Mr. Jeromin Zettelmeyer, Mr. Eduardo Borensztein, and Mr. Andrew Berg
What are the relative roles of macroeconomic variables, structural policies, and initial conditions in explaining the time path of output in transition and the large observed differences in output performance across transition economies? Using a sample of 26 countries, this paper follows a general-to-specific modeling approach that allows for differential effects of policies and initial conditions on the private and state sectors and for time-dependent effects of initial conditions. While showing some fragility to model specification, the results point to the preeminence of structural reforms over both initial conditions and macroeconomic variables in explaining cross-country differences in performance and the timing of the recovery.
Mr. Santiago Acosta Ormaechea, Mr. Takuji Komatsuzaki, and Carolina Correa-Caro
We estimate the effects on growth of nine fiscal reform episodes in seven high-income countries
using the Synthetic Control Method. These episodes are selected using an indicator-based approach
applied to the evaluation of growth-friendly fiscal reforms during 1975-2010. We find that in reform
countries the annual growth rate of real GDP was on average about 1 percentage point above their
synthetic units 10 years after each respective reform. Moreover, countries which were initially less
developed seemed to experience a larger growth impact after their reforms. Results are broadly
robust to controlling for structural reforms on business regulation, financial market, labor market, and
legal and product markets, which may also affect growth. Our findings also suggest that inequality is
not affected by the growth-friendly fiscal reforms analyzed in this paper.