THE SHORT TERM EFFECTS OF STRUCTURAL REFORMS AND INSTITUTIONAL IMPROVEMENTS IN OECD ECONOMIES
University of Patras
Bank of Greece, University of Patras and
Hellenic Parliamentary Budget Office
Using a panel of 37 OECD countries over the period 1990–2019, we examine the short to medium term effect of structural reforms and governance or institutional improvements on growth. Employing an updated OECD dataset on product and labor market regulation and governance indicators for the World Bank and after controlling for the endogeneity of reforms via the augmented inverse probability weighting (AIPW) method we find that it is governance or institutional improvements (such as on government effectiveness, regulatory quality and rule of law) that have positive growth effects on real GDP in most cases. Labor market reforms do have positive growth effects under specific conditions, i.e., at times of recession, better governance, low indebtedness, low trade openness, high employment rate and tight monetary policy. Product market reforms have negative growth effects at most times and states considered. However, we find that, countries with better governance quality and deregulated labor market can reap significant benefits from them.
JEL classification: E52, H30, J65, K10, L51
Keywords: governance, regulatory quality, rule of law, structural reforms, product mar- ket, labor market, growth
Acknowledgements: We would like to thank Hiona Balfoussia, Nikolaos Giannakopoulos, Dimitris Malliaropoulos, Athina Zervogianni, Eleftherios Goulas and the anonymous re- viewer of the Working Paper Series of the Bank of Greece. The views expressed are those of the authors and do not necessarily reflect those of the Bank of Greece and the Hellenic Parliamentary Budget Office. All remaining errors are ours.
Economic Analysis and Research Department
Bank of Greece
El.Venizelos 21, 10250 Athens, Greece