Relative Returns to Policy Reform : Evidence from Controlled Cross-Country Regressions
The authors aim at contributing to understand the dispersion of returns from policy reforms using cross-country regressions. The authors compare the "before reform" with "after reform" GDP growth outcome of countries that undert...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2002/10/2032622/relative-returns-policy-reform-evidence-controlled-cross-country-regressions http://hdl.handle.net/10986/19222 |
| Summary: | The authors aim at contributing to
understand the dispersion of returns from policy reforms
using cross-country regressions. The authors compare the
"before reform" with "after reform" GDP
growth outcome of countries that undertook
import-liberalization and fiscal policy reforms. They survey
a large sample (about 54) of developing countries over the
period 1980-99. The benefits of openness to trade and fiscal
prudence have been extensively identified in the growth
literature, but the evidence from simple cross-section
analysis can sometimes be inconclusive and remains
vulnerable to criticism on estimation techniques, such as
identification, endogeneity, multi-colinearity, and the
quality of the data. The authors use a different analytical
framework that establishes additional controls. First, they
construct a counterfactual control group. These are
countries that-under specific thresholds-did not introduce
policy reforms under scrutiny. Second, the authors also try
to use the most appropriate variable of policy reform, for
example, exogenous changes in import-tariffs instead of the
endogenous sum of all trade flows. Third, the authors try to
base the before-after reform comparison on the most accurate
date for the beginning of a policy reform period (instead of
comparing averages over fixed intervals of time). Once these
controls are set, they explain the difference between
average GDP growth rates during the country-specific post
and the pre-reform periods, relative to the average GDP
growth of the relevant control group. The explanatory
variables in the regressions include the standard
growth-regression controls. The results are the following:
1) With a better measurement and timing of the policy
reforms, the growth effect (the "returns on
reform") is generally smaller than in previous papers.
2) There is evidence of contingent relationships between
policy and growth, corresponding to the country's size,
its export profile, and its governance. 2) Within the group
of policy reformers, some countries have exhibited a
relatively weaker growth response. Overall, the findings
suggest that more accurate measurement and definition of the
timing of reforms does not strengthen the significance of
the effects of reforms on GDP growth. In fact, the effects
are weaker than indicated in most cross-section studies.
This suggests that the policy implications to be derived
from these relationships should be treated with even more
caution than previously thought. |
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