Appendix Data, Sources, and Methods
List of Economies in the Sample
List of Economies in the Sample
| Low Income | Middle Income | High Income |
|---|---|---|
| Bangladesh | Albania | Australia |
| Burkina Faso | Algeria | Austria |
| Côte d'Ivoire | Argentina | Belgium |
| Ethiopia | Azerbaijan | Canada |
| Ghana | Belarus | Czech Republic |
| India | Bolivia | Denmark |
| Kenya | Brazil | Estonia |
| Madagascar | Bulgaria | Finland |
| Mozambique | Cameroon | France |
| Nepal | Chile | Germany |
| Nigeria | China | Greece |
| Pakistan | Colombia | Hong Kong SAR |
| Senegal | Costa Rica | Ireland |
| Tanzania | Dominican Republic | Israel |
| Uganda | Ecuador | Italy |
| Uzbekistan | Egypt | Japan |
| Vietnam | El Salvador | Korea |
| Zimbabwe | Georgia | Netherlands |
| Guatemala | New Zealand | |
| Hungary | Norway | |
| Indonesia | Portugal | |
| Jamaica | Singapore | |
| Jordan | Spain | |
| Kazakhstan | Sweden | |
| Latvia | Switzerland | |
| Lithuania | Taiwan Province of China | |
| Malaysia | United Kingdom | |
| Mexico | United States | |
| Morocco | ||
| Nicaragua | ||
| Paraguay | ||
| Peru | ||
| Philippines | ||
| Poland | ||
| Romania | ||
| Russia | ||
| South Africa | ||
| Sri Lanka | ||
| Thailand | ||
| Tunisia | ||
| Turkey | ||
| Ukraine | ||
| Uruguay | ||
| Venezuela, Rep. Bolivariana |
List of Economies in the Sample
| Low Income | Middle Income | High Income |
|---|---|---|
| Bangladesh | Albania | Australia |
| Burkina Faso | Algeria | Austria |
| Côte d'Ivoire | Argentina | Belgium |
| Ethiopia | Azerbaijan | Canada |
| Ghana | Belarus | Czech Republic |
| India | Bolivia | Denmark |
| Kenya | Brazil | Estonia |
| Madagascar | Bulgaria | Finland |
| Mozambique | Cameroon | France |
| Nepal | Chile | Germany |
| Nigeria | China | Greece |
| Pakistan | Colombia | Hong Kong SAR |
| Senegal | Costa Rica | Ireland |
| Tanzania | Dominican Republic | Israel |
| Uganda | Ecuador | Italy |
| Uzbekistan | Egypt | Japan |
| Vietnam | El Salvador | Korea |
| Zimbabwe | Georgia | Netherlands |
| Guatemala | New Zealand | |
| Hungary | Norway | |
| Indonesia | Portugal | |
| Jamaica | Singapore | |
| Jordan | Spain | |
| Kazakhstan | Sweden | |
| Latvia | Switzerland | |
| Lithuania | Taiwan Province of China | |
| Malaysia | United Kingdom | |
| Mexico | United States | |
| Morocco | ||
| Nicaragua | ||
| Paraguay | ||
| Peru | ||
| Philippines | ||
| Poland | ||
| Romania | ||
| Russia | ||
| South Africa | ||
| Sri Lanka | ||
| Thailand | ||
| Tunisia | ||
| Turkey | ||
| Ukraine | ||
| Uruguay | ||
| Venezuela, Rep. Bolivariana |
Description of Reform Indices
Description of Reform Indices
| Coverage | ||||||
|---|---|---|---|---|---|---|
| Reform Indices | Description | Source | start year | End year | Minimum number of countries in any year | Maximum number of countries in any year |
| Financial sector | ||||||
| Domestic financial sector liberalization | The index of domestic financial liberalization is an average of six subindices. Five of them relate to banking: (1) interest rate controls, such as floors or ceilings; (2) credit controls, such as directed credit and subsidized lending; (3) competition restrictions, such as limits on branches and entry barriers in the banking sector, including licensing requirements or limits on foreign banks; (4) the degree of state ownership; and (5) the quality of banking supervision and regulation, including power of independence of bank supervisors, adoption of Basel capital standards, and a framework for bank inspections. The sixth subindex relates to securities markets and covers policies to develop domestic bond and equity markets, including (1) the creation of basic frameworks such as the auctioning of treasury bills or the establishment of a security commission; (2) policies to further establish securities markets such as tax exemptions, introduction of medium- and long-term government bonds to establish a benchmark for the yield curve, or the introduction of a primary dealer system; (3) policies to develop derivative markets or to create an institutional investor9s base; and (4) policies to permit access to the domestic stock market by nonresidents. The subindices are aggregated with equal weights. Each subindex is coded from zero (fully repressed) to three (fully liberalized). | Abiad, Detragiache, and Tressel (2008), following the methodology in Abiad and Mody (2005), based on various IMF reports and working papers, central bank websites, and others. | 1973 | 2005 | 72 | 91 |
| External capital account liberalization: aggregate | Qualitative indicators of restrictions on financial credits and personal capital transactions of residents and financial credits to nonresidents, as well as the use of multiple exchange rates. Index coded from zero (fully repressed) to three (fully liberalized). | Abiad, Detragiache, and Tressel (2008), following the methodology in Abiad and Mody (2005), based on various IMF reports and working papers, central bank websites, and others. | 1973 | 2005 | 72 | 91 |
| External capital account liberalization: residents versus nonresidents | Indicators measuring the intensity of legal restrictions on residents' and nonresidents' ability to move capital into and out of a country. Index originally coded from zero (fully repressed) to SO (fully liberalized). | Based on the methodology in Quinn (1997) and Quinn and Toyoda (2008), drawing on information contained in the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER). | 1960 | 2005 | 50 | 65 |
| Real sector | ||||||
| Trade liberalization Tariff rates | Average tariff rates, with missing values extrapolated using implicit weighted tariff rates. Index normalized to be between zero and unity: zero means the tariff rates are 60 percent or higher, while unity means the tariff rates are zero. | Various sources, including IMF, World Bank, WTO, UN, and the academic literature (particularly Clemens and Willamson, 2004). | 1960 | 2005 | 47 | 142 |
| Current account restrictions | An indicator of how compliant a government is with its obligations under the IMF's Article VIII to free from government restriction the proceeds from international trade in goods and services. The index represents the sum of two subcomponents, dealing with restrictions on trade in visibles, as well as in invisibles (financial and other services). It distinguishes between restrictions on residents (receipts for exports) and on nonresidents (payments for imports). Although the index measures restrictions on the proceeds from transactions, rather than on the underlying transactions, many countries in practice use restrictions on trade proceeds as a type of trade restriction. The index is scored between zero and eight in half-integer units, with eight indicating full compliance. | Based on the methodology in Quinn (1997) and Quinn and Toyoda (2008), drawing on information contained in the IMF's AREAER. | 1960 | 2005 | 50 | 65 |
| Product markets Telecommunications and electricity industries | Simple average of the telecommunications and electricity markets subindices, which are constructed, in turn, from scores along three dimensions. For telecommunications, they capture: (1) the degree of competition in local services; (2) whether a regulator other than government has been established; and (3) the degree of liberalization of interconnection changes. Indices are coded with values ranging from zero (not liberalized) to two (completely) liberalized). For electricity, they capture: (1) the degree of unbundling of generation, transmission, and distribution; (2) whether a regulator other than government has been established; and (3) whether the wholesale market has been liberalized. | Based on various existing studies and datasets as well as national legislation and other official documents. | 1960 | 2003 | 106 | 108 |
| Agriculture | The index captures intervention in the market for the main agricultural export commodity in each country. As data limitations preclude coding separate dimensions of intervention, the index provides a summary measure. Each country-year pair can take four values: (1) zero (public monopoly or monopsony in production, transportation, or marketing, for example, export marketing boards); (2) one-third (administered prices); (3) two-thirds (public ownership of relevant producers or concession requirements); and (4) one (no public intervention). | Based on IMF commodities data, various existing studies and datasets, and national legislation and other official documents. | 1960 | 2003 | 96 | 104 |
Description of Reform Indices
| Coverage | ||||||
|---|---|---|---|---|---|---|
| Reform Indices | Description | Source | start year | End year | Minimum number of countries in any year | Maximum number of countries in any year |
| Financial sector | ||||||
| Domestic financial sector liberalization | The index of domestic financial liberalization is an average of six subindices. Five of them relate to banking: (1) interest rate controls, such as floors or ceilings; (2) credit controls, such as directed credit and subsidized lending; (3) competition restrictions, such as limits on branches and entry barriers in the banking sector, including licensing requirements or limits on foreign banks; (4) the degree of state ownership; and (5) the quality of banking supervision and regulation, including power of independence of bank supervisors, adoption of Basel capital standards, and a framework for bank inspections. The sixth subindex relates to securities markets and covers policies to develop domestic bond and equity markets, including (1) the creation of basic frameworks such as the auctioning of treasury bills or the establishment of a security commission; (2) policies to further establish securities markets such as tax exemptions, introduction of medium- and long-term government bonds to establish a benchmark for the yield curve, or the introduction of a primary dealer system; (3) policies to develop derivative markets or to create an institutional investor9s base; and (4) policies to permit access to the domestic stock market by nonresidents. The subindices are aggregated with equal weights. Each subindex is coded from zero (fully repressed) to three (fully liberalized). | Abiad, Detragiache, and Tressel (2008), following the methodology in Abiad and Mody (2005), based on various IMF reports and working papers, central bank websites, and others. | 1973 | 2005 | 72 | 91 |
| External capital account liberalization: aggregate | Qualitative indicators of restrictions on financial credits and personal capital transactions of residents and financial credits to nonresidents, as well as the use of multiple exchange rates. Index coded from zero (fully repressed) to three (fully liberalized). | Abiad, Detragiache, and Tressel (2008), following the methodology in Abiad and Mody (2005), based on various IMF reports and working papers, central bank websites, and others. | 1973 | 2005 | 72 | 91 |
| External capital account liberalization: residents versus nonresidents | Indicators measuring the intensity of legal restrictions on residents' and nonresidents' ability to move capital into and out of a country. Index originally coded from zero (fully repressed) to SO (fully liberalized). | Based on the methodology in Quinn (1997) and Quinn and Toyoda (2008), drawing on information contained in the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER). | 1960 | 2005 | 50 | 65 |
| Real sector | ||||||
| Trade liberalization Tariff rates | Average tariff rates, with missing values extrapolated using implicit weighted tariff rates. Index normalized to be between zero and unity: zero means the tariff rates are 60 percent or higher, while unity means the tariff rates are zero. | Various sources, including IMF, World Bank, WTO, UN, and the academic literature (particularly Clemens and Willamson, 2004). | 1960 | 2005 | 47 | 142 |
| Current account restrictions | An indicator of how compliant a government is with its obligations under the IMF's Article VIII to free from government restriction the proceeds from international trade in goods and services. The index represents the sum of two subcomponents, dealing with restrictions on trade in visibles, as well as in invisibles (financial and other services). It distinguishes between restrictions on residents (receipts for exports) and on nonresidents (payments for imports). Although the index measures restrictions on the proceeds from transactions, rather than on the underlying transactions, many countries in practice use restrictions on trade proceeds as a type of trade restriction. The index is scored between zero and eight in half-integer units, with eight indicating full compliance. | Based on the methodology in Quinn (1997) and Quinn and Toyoda (2008), drawing on information contained in the IMF's AREAER. | 1960 | 2005 | 50 | 65 |
| Product markets Telecommunications and electricity industries | Simple average of the telecommunications and electricity markets subindices, which are constructed, in turn, from scores along three dimensions. For telecommunications, they capture: (1) the degree of competition in local services; (2) whether a regulator other than government has been established; and (3) the degree of liberalization of interconnection changes. Indices are coded with values ranging from zero (not liberalized) to two (completely) liberalized). For electricity, they capture: (1) the degree of unbundling of generation, transmission, and distribution; (2) whether a regulator other than government has been established; and (3) whether the wholesale market has been liberalized. | Based on various existing studies and datasets as well as national legislation and other official documents. | 1960 | 2003 | 106 | 108 |
| Agriculture | The index captures intervention in the market for the main agricultural export commodity in each country. As data limitations preclude coding separate dimensions of intervention, the index provides a summary measure. Each country-year pair can take four values: (1) zero (public monopoly or monopsony in production, transportation, or marketing, for example, export marketing boards); (2) one-third (administered prices); (3) two-thirds (public ownership of relevant producers or concession requirements); and (4) one (no public intervention). | Based on IMF commodities data, various existing studies and datasets, and national legislation and other official documents. | 1960 | 2003 | 96 | 104 |
Growth Spurts
The Underlying Methodology
This subsection discusses in greater depth the methodology used to identify growth spurts. This methodology is based on recent work by Antoshin, Berg, and Souto (2008) and Bai and Perron (1998 and 2003). Briefly, the Bai and Perron methodology first identifies a number of breaks in a time series, regardless of statistical significance. Once the breaks have been identified, it calculates a series of statistics to test for their statistical significance. However, the statistical significance tests proposed by Bai and Perron use asymptotic critical values, which are appropriate only when the sample is sufficiently large. As pointed out by Antoshin, Berg, and Souto, working with very small time series is inevitable in growth studies, because even for the most advanced countries reliable GDP data are scarce. These authors show via simulation exercises that statistics based on asymptotics can yield significant deviations in both size and power, especially when dealing with very small time series (with as low as 50 observations).
Antoshin, Berg, and Souto consequently propose modifying the Bai and Perron methodology to deal with small time series by using Monte Carlo simulations to determine sample-specific critical values under the null each time that the tests are run. Further, they provide practical suggestions on handling serial correlation, model misspecification, and the use of alternative test statistics for sequential testing. Finally, they show that, for most types of data generating processes in samples with as low as 50 observations, the proposed modifications represent a substantial improvement. For a more detailed discussion of the Bai-Perron and Antoshin-Berg-Souto methodologies, see Antoshin, Berg, and Souto (2008).
Discussion of Figures 5.2 and 5.4
Figures 5.2 and 5.4 plot the average level of the residuals from a panel regression of each index on country and year fixed effects for a period starting five years before the break (year zero on the horizontal axis) and ending five years after the break. All plotted averages are based on the set of countries for which the index is available three years before the break, so that each line shows how the average index has evolved around the break for the same group of countries. Given that the panel regression removes country- and year-specific averages of each index, a movement in the average residual from below to above the zero reference line prior to a growth upbreak (as in the case of the domestic financial liberalization index, top panel of Figure 5.2) indicates that the reform index has gone from below the country-average to above the country-average prior to the upbreak. The year-specific fixed effects effectively remove also the global trend in each index so that, in practice, the country-specific averages relative to which the plotted residuals are measured are trend-corrected. This means that a decline in the residual around growth downbreaks (as in the case of the current account and agriculture indices, middle and bottom panels of Figure 5.2) can indicate either reform reversals, or a lack of reform in a period where most other countries were reforming.
Specification of Growth Regressions
The results in Tables 5.1 and 5.6 are obtained by estimating simple OLS regressions based on the following specification:
where the dependent variable is per capita GDP growth in country i at period t, regressed on lagged per capita GDP and each type of lagged real and financial reforms considered. ηi denotes the full set of country dummies, δt denotes the full set of time dummies, and εit captures all omitted effects. By including country fixed effects, we control for any country time-invariant characteristic (such as colonial legacies, legal origins, or ethnic fragmentation) that could affect both our measures of structural reforms and per capita income growth.
The results based on the Schumpeterian approach in Tables 5.2 and 5.8 are based on the following econometric specification:
where GDPi,t–1/GDPUS,t–1 is the ratio of per capita GDP in country i to per capita GDP in the United States (an “income-gap” term that captures convergence), and Reformi,t–1*(GDPi,t–1/GDPUS,t–1) is an interaction between reform and income gap that captures the potential effect of reforms in closing the gap. If the interaction term is negative and significant, then the growth returns from reforming that sector will be larger the further a country is from the world output frontier.
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Note: For information on the titles and availability of Occasional Papers not listed, please consult the IMF's Publications Catalog or contact IMF Publication Services.