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 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.

Bibliographic Details

Main Authors:	de Castro, Alexandre Samy, Goldin, Ian, Pereira da Silva, Luiz A.
Language:	English
Published:	World Bank 2002-10
Subjects:	AGRICULTURAL EXPORTS, AGRICULTURAL PRODUCTS, AGRICULTURE, ANDEAN PACT, ANTIDUMPING, AVERAGE GROWTH, AVERAGE GROWTH RATE, AVERAGE TARIFF, AVERAGE TARIFF RATE, AVERAGE TARIFF RATES, AVERAGE TARIFFS, AVERAGE TRADE, BALANCE OF PAYMENTS, BALANCE OF PAYMENTS CRISIS, BARRIERS TO IMPORTS, BLACK MARKET, BLACK MARKET PREMIUM, CAPITAL ACCOUNT, CAPITAL ACCUMULATION, CAPITAL STOCK, CD, COMPARATIVE ADVANTAGE, COMPLEX TASK, CONCESSIONS, CONSUMPTION EXPENDITURES, COUNTRY CHARACTERISTICS, COUNTRY REGRESSIONS, COUNTRY SIZE, CROSS- COUNTRY ANALYSIS, CROSS- COUNTRY VARIATION, CROSS-COUNTRY ANALYSIS, CROSS-COUNTRY REGRESSIONS, CURRENCY, CUSTOMS, CUSTOMS UNION, DATA AVAILABILITY, DEBT, DEVELOPED COUNTRIES, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, DEVELOPMENT INDICATORS, ECONOMIC GROWTH, ECONOMIC POLICY, EMPIRICAL EVIDENCE, EQUATIONS, ESTIMATED COEFFICIENTS, ESTIMATION METHOD, ESTIMATION TECHNIQUES, EXCHANGE RATE, EXOGENOUS SHOCK, EXOGENOUS SHOCKS, EXPENDITURES, EXPLANATORY VARIABLES, EXPORT SHARES, EXPORTERS, EXPORTS, EXTERNAL DEBT, EXTERNAL SHOCKS, FACTORS OF PRODUCTION, FINANCIAL LIBERALIZATION, GDP, GDP PER CAPITA, GLOBAL TRADE, GROWTH EFFECT, GROWTH LITERATURE, GROWTH PERFORMANCE, GROWTH RATE, GROWTH RATES, GROWTH REGRESSIONS, HIGH INCOME COUNTRIES, HIGH TARIFFS, HUMAN CAPITAL, IDIOSYNCRATIC SHOCKS, IMPORT DUTIES, IMPORT LIBERALIZATION, IMPORT TARIFFS, INCOME, INCREASE GROWTH, INCREASING MARKET ACCESS, INFLATION, INVESTMENT RATE, INVESTMENT RATES, LAGGED GROWTH, LONG- RUN GROWTH, MACRO POLICY, MACROECONOMIC CONDITIONS, MACROECONOMIC POLICY, MARGINAL COST, MARGINAL EFFECT, MARGINAL EFFECTS, MARKET ACCESS, NEGATIVE EFFECT, NEGATIVE IMPACT, NON-TARIFF BARRIERS, OPEN ECONOMIES, OPENNESS, OPENNESS TO IMPORTS, POLICY ANALYSIS, POLICY IMPLICATIONS, POLICY INSTRUMENTS, POLICY REFORM, POLICY REFORMS, POLICY RESEARCH, POLICY VARIABLES, PRIMARY EDUCATION, PRIMARY PRODUCTS, PRODUCTION FUNCTION, PRODUCTIVITY, PUBLIC INVESTMENT, PUBLIC POLICIES, QUOTAS, REAL INTEREST RATES, REDUCED FORM EQUATION, REGIONAL TRADE, REGIONAL TRADE BLOCS, REGIONAL TRADE SHARES, REGULATORY FRAMEWORK, SAVINGS, SIGNIFICANT REDUCTION, STANDARD DEVIATION, STANDARD GROWTH DETERMINANTS, TARIFF BARRIERS, TARIFF RATE, TARIFF RATES, TARIFF REDUCTION, TAX REVENUES, TAX SYSTEM, TERMS OF TRADE, TERMS OF TRADE SHOCKS, TOTAL FACTOR PRODUCTIVITY, TRADE BARRIERS, TRADE BLOC, TRADE BLOCS, TRADE CONTROL MEASURES, TRADE DIVERSION, TRADE DIVERSION EFFECT, TRADE FLOW, TRADE FLOWS, TRADE INTENSITY, TRADE LIBERALIZATION, TRADE OPENNESS, TRADE POLICIES, TRADE POLICY, TRADE POLICY REVIEW, TRADE POLICY VARIABLES, TRADE REFORM, TRADE REGIME, TRADE RESTRICTIONS, TRADE SHARE, TRADE TAXES, UNDERESTIMATES, URUGUAY ROUND, WORLD TRADE, WTO, CROSS-COUNTRY EXPERIENCE, GROSS DOMESTIC PRODUCT, GROWTH PATTERNS, FISCAL POLICY, PRUDENTIAL REGULATIONS, VARIABILITY, TRADE FINANCE, REGRESSIVE TAXES, GOVERNANCE CAPACITY,
Online Access:	http://documents.worldbank.org/curated/en/2002/10/2032622/relative-returns-policy-reform-evidence-controlled-cross-country-regressions https://hdl.handle.net/10986/19222
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