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Wide-reaching Structural Reforms and Growth: A Cross-country Synthetic Control Approach

Author

Listed:
  • Alessio Terzi

    (Center for International Development at Harvard University)

  • Pasqual Marco Marrazzo

Abstract

At a time of slow growth in several advanced and emerging countries, calls for more structural reforms are multiplying. However, estimations of the short- and medium-term impact of these reforms on GDP growth remain methodologically problematic and still highly controversial. We contribute to this literature by making a novel use of the non-parametric Synthetic Control Method to estimate the impact of 23 wide-reaching structural reform packages (including both real and financial sector measures) rolled out in 22 countries between 1961 and 2000. Our results suggest that, on average, reforms started having a significant positive effect on GDP per capita only after five years. Ten years after the beginning of a reform wave, GDP per capita was roughly 6 percentage points higher than the synthetic counterfactual scenario. However, average point estimates mask a large heterogeneity of outcomes. Benefits tended to materialise earlier, but overall to be more limited, in advanced economies than in emerging markets. These results are confirmed when we use a parametric dynamic panel fixed effect model to control for the rich dynamics of GDP, and are robust to a variety of alternative specifications, placebo and falsification tests, and to different indicators of reform.

Suggested Citation

  • Alessio Terzi & Pasqual Marco Marrazzo, 2017. "Wide-reaching Structural Reforms and Growth: A Cross-country Synthetic Control Approach," CID Working Papers 82a, Center for International Development at Harvard University.
    • Handle: RePEc:cid:wpfacu:82a
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    File URL: https://growthlab.cid.harvard.edu/files/growthlab/files/cid_rfwp_82.pdf
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    Cited by:

    1. Robert Kraemer & Jonne Lehtimäki, 2024. "Government debt, European Institutions and fiscal rules: a synthetic control approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(4), pages 1112-1157, August.
    2. Terzi, Alessio, 2020. "Macroeconomic adjustment in the euro area," European Economic Review, Elsevier, vol. 128(C).
    3. Florence Bouvet & Roy Bower & Jason C. Jones, 2022. "Currency Devaluation as a Source of Growth in Africa: A Synthetic Control Approach," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 48(3), pages 367-389, June.
    4. Douglas A. Irwin, 2019. "Does Trade Reform Promote Economic Growth? A Review of Recent Evidence," Working Paper Series WP19-9, Peterson Institute for International Economics.
    5. William Easterly, 2019. "In Search of Reforms for Growth: New Stylized Facts on Policy and Growth Outcomes," NBER Working Papers 26318, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    structural reforms; economic growth; synthetic control;
    All these keywords.

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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