Which Reforms Work and Under What Institutional Environment: Evidence from a New Dataset on Structural Reforms

Are structural reforms growth enhancing? Is the effectiveness of reforms constrained by a country’s distance from the technology frontier or by its institutional environment? This paper takes a new and comprehensive look at these questions by employing a novel dataset that includes several kinds of real (trade, agriculture and networks) and financial (domestic finance, banking, securities, and capital account) reforms for an extensive list of developed and developing countries, going back to the early 1970s. First pass evidence based on growth breaks analysis and on panel growth regressions suggests that on average both real- and financial-sector reforms are positively associated with higher growth. However, in several occasions botched reforms resulted in growth disasters. More importantly, the positive reformgrowth relationship is shown to be highly heterogeneous and to be influenced by a country’s constraints on the authority of the executive power and by its distance from the technology frontier. Finally, there is some evidence that crises (defined as severe growth downturns) are associated with subsequent reform upticks.