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Structural Reforms and Economic Growth: A Machine Learning Approach
Author:
Mr. Anil Ari
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https://orcid.org/0000-0002-8707-6985
,
Gabor Pula
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, and
Liyang Sun
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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 184
Language:
English
Publication Date:
16 Sep 2022
DOI:
https://doi.org/10.5089/9798400219955.001
ISBN:
9798400219955
ISSN:
1018-5941
Pages:
32
Keywords:
Structural reforms; institutions; economic growth; C. PLS estimation procedure; machine learning approach; Gabor pula; Liyang sun; labor market composite; Business environment; Labor markets; Machine learning; Labor market reforms; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The qualitative and granular nature of most structural indicators and the variety in data sources poses difficulties for consistent cross-country assessments and empirical analysis. We overcome these issues by using a machine learning approach (the partial least squares method) to combine a broad set of cross-country structural indicators into a small number of synthetic scores which correspond to key structural areas, and which are suitable for consistent quantitative comparisons across countries and time. With this newly constructed dataset of synthetic structural scores in 126 countries between 2000-2019, we establish stylized facts about structural gaps and reforms, and analyze the impact of reforms targeting different structural areas on economic growth. Our findings suggest that structural reforms in the area of product, labor and financial markets as well as the legal system have a significant impact on economic growth in a 5-year horizon, with one standard deviation improvement in one of these reform areas raising cumulative 5-year growth by 2 to 6 percent. We also find synergies between different structural areas, in particular between product and labor market reforms.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund