Structural Reforms And Macroeconomic Performance

As a companion piece to the Board paper on Structural Reforms and Macroeconomic Performance: Initial Considerations for the Fund, this paper presents a selection of case studies on the structural reform experiences of member countries. These papers update the Board on work since the Triennial Surveillance Review toward strengthening the Fund’s capacity to analyze and, where relevant, offer policy advice on macro-relevant structural issues. The paper builds on the already considerable analytical work underway across the Fund, setting out considerations to support a more strategic approach going forward.

Structural policies have become a prominent feature of today’s macroeconomic policy discussion. For many countries, lackluster economic growth and high unemployment cloud the outlook. With fewer traditional policy options, policymakers are increasingly focused on the complementary role of structural policies in promoting more durable job-rich growth. In particular, the G20 has emphasized the essential role of structural reforms in ensuring strong, sustainable and balanced growth. Against this backdrop, the 2014 Triennial Surveillance Review (TSR) called for further work to enhance the Fund’s ability to selectively provide more expert analysis and advice on structural issues, particularly where there is broad interest among member countries. The purpose of this paper is to engage the Board on staff’s post-TSR work toward strengthening the Fund’s capacity to analyze and, where relevant, offer policy advice on macro-relevant structural issues.

The relation between structural reform and macroeconomic policy underlies the widespread perception that the large European economies have under-performed in the past decade in comparison both with their own standards and with the contemporaneous performance of the United States. This book, edited and introduced by Noel Laureate Robert M. Solow, provides analyses of how these economies could take a co-ordinated and simultaneous approach to reform in labour and product markets and the demand side.

This volume examines the impact on economic performance of structural policies-policies that increase the role of market forces and competition in the economy, while maintaining appropriate regulatory frameworks. The results reflect 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. Among the key results of this study, the authors find that real and financial reforms (and, in particular, domestic financial liberalization, trade liberalization, and agricultural liberalization) boost income growth. However, growth effects differ significantly across alternative reform sequencing strategies: a trade-before-capital-account strategy achieves better outcomes than the reverse, or even than a "big bang"; also, liberalizing the domestic financial sector together with the external capital account is growth-enhancing, provided the economy is relatively open to international trade. Finally, relatively liberalized domestic financial sectors enhance the economy's resilience, reducing output costs from adverse terms-of-trade and interest-rate shocks; increased credit availability is one of the key mechanisms.

This paper presents a simultaneous assessment of the relationship between economic performance and three groups of economic reforms: domestic finance, trade, and the capital account. Among these, domestic financial reforms, and trade reforms, are robustly associated with economic growth, but only in middle-income countries. In contrast, we do not find any systematic positive relationship between capital account liberalization and economic growth. Moreover, the effect of domestic financial reforms on economic growth in middle-income countries is explained by improvements in measured aggregate TFP growth, not by higher aggregate investment. We present evidence that variation in the quality of property rights helps explain the heterogeneity of the effectiveness of financial and trade reforms in developing countries. The evidence suggests that sufficiently developed property rights are a precondition for reaping the benefits of economic reform. Our results are robust to endogeneity bias and a number of alternative specifications.

This study investigates the likely macroeconomic impact of various structural reforms that align the Chilean regulatory framework with international best practices. In this context, the analysis: i) presents a comparison across a large set of structural indicators; ii) identifies policy gaps with respect to OECD countries; and iii) provides quantification of the likely growth and fiscal impact of policy reforms needed to close the gaps. Chile’s economy is likely to benefit from streamlining business regulation and licensing, strengthening innovation and R&D capacity, improving labor market flexibility, and enhancing active labor market policies. Overall, the study presents a scenario in which Chile closes structural gaps with OECD’s 25th percentile over five years, with up to 6 percent higher output level and a cumulative net fiscal gain of about 1⁄2 percent of GDP.

Contains the papers presented at the international conference "Interactions between structural reform, macroeconomic policies and economic performance" & summarises discussions held. Part of the follow-up programme of work [from] the OECD jobs study. - On cover: OECD proceedings