DOES REFORM WORK? AN ECONOMETRIC EXAMINATION OF THE REFORM-GROWTH PUZZLE

Jan Babecky and Nauro F. Campos

Abstract

Despite the many benefits associated with structural reforms, the literature has thus far failed to establish a positive significant effect of reforms on growth. Using data from 43 econometric studies, we show that one third of the coefficients (of reform on growth) are positive and significant, another third are negative and significant, and the final third are not statistically significant. In trying to understand this remarkable variation, we find that the measurement of reform and controlling for institutions and initial conditions are the main factors in decreasing the probability of reporting a significant and positive effect of reform on growth.