Does Reform Work? An Econometric Examination of the Reform-Growth Puzzle

41 Pages Posted: 22 May 2008

See all articles by Ian Babetskii

Ian Babetskii

Czech National Bank - External Economic Relations Division

Nauro F. Campos

University College London; University of Michigan at Ann Arbor - The William Davidson Institute; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

Abstract

Why are socially beneficial reforms not implemented? One simple answer to this question (which has received little attention in the literature) is that this may be caused by generalised uncertainty about the effectiveness of reforms. If agents are unsure about whether a proposed reform will work, it will be less likely to be adopted. Despite the numerous benefits economists assign to structural reforms, the empirical literature has thus far failed to establish a positive and significant effect of reforms on economic performance. We collect data from 43 econometric studies (for more than 300 coefficients on the effects of reform on growth) and show that approximately one third of these coefficients is positive and significant, another third is negative and significant, and the final third is not statistically significant different from zero. In trying to understand this remarkable variation, we find that the measurement of reform and controlling for institutions and initial conditions are main factors in decreasing the probability of reporting a significant and positive effect of reform on growth.

Keywords: Economic growth, structural reform

JEL Classification: C49, O11, P21

Suggested Citation

Babetskii, Ian and Campos, Nauro F., Does Reform Work? An Econometric Examination of the Reform-Growth Puzzle (March 2007). CEPR Discussion Paper No. DP6215, Available at SSRN: https://ssrn.com/abstract=1135457

Ian Babetskii (Contact Author)

Czech National Bank - External Economic Relations Division ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Nauro F. Campos

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

University of Michigan at Ann Arbor - The William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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