February 2007
Why are socially beneficial reforms not implemented? One simple answer
to this question (which has received
little attention in the literature) is that this may be caused by generalised
uncertainty about the effectiveness of
reforms. If agents are unsure about whether a proposed reform will work,
it will be less likely to be adopted. Despite
the numerous benefits economists assign to structural reforms, the empirical
literature has thus far failed to
establish a positive and significant effect of reforms on economic performance.
We collect data from 43 econometric
studies (for more than 300 coefficients on the effects of reform on growth)
and show that approximately one third
of these coefficients is positive and significant, another third is negative
and significant, and the final third is not
statistically significant different from zero. In trying to understand
this remarkable variation, we find that the measurement
of reform and controlling for institutions and initial conditions are main
factors in decreasing the probability of
reporting a significant and positive effect of reform on growth.
Download working paper version: CEPR DP IZA DP