Structural Reforms and Economic Performance in Advanced and Developing Countries

This paper examines the contribution of structural policies—that is, policies that increase the role of market forces and competition in the economy, while maintaining appropriate regulatory frameworks to deal with market failures—to economic performance. The results are based on a new dataset covering reforms of domestic product markets, international trade, the domestic financial sector, and the external capital account, in 91 developed and developing countries. Some key results are: (i) real and financial sector reforms have tended to boost per capita income growth and enhance macroeconomic stability, including by facilitating adjustment to various shocks; (ii) financial sector reforms have raised growth through a number of channels, including a reduction in domestic credit constraints and larger inflows of FDI; (iii) structural reforms have exerted meaningful effects on allocative efficiency, as firms across different sectors react to the shifts in comparative advantage brought about by deregulation; and (iv) growth effects differ significantly across alternative reform sequencing strategies, with a trade-before-capital-account strategy achieving better outcomes than the reverse sequence, or even than a “big bang ” where reforms are pursued together. JEL codes: E20, H11, O57