Structural Policies and Growth: Time Series Evidence from a Natural Experiment

25 Pages Posted: 9 May 2012

See all articles by Theo S. Eicher

Theo S. Eicher

University of Washington - Department of Economics

Till Schreiber

affiliation not provided to SSRN

Date Written: May 8, 2012

Abstract

Documenting the long term impact of structural policies on economic performance has generated tremendous interest in the development literature. In contrast, contemporary effects of structural policies are difficult to establish. Structural policies seldom change sufficiently in the short run, and accepted instruments to control for endogeneity in cross sections are inappropriate for time series analysis. In this paper we utilize an eleven year panel of 26 transition countries to identify short term effects of structural policies that are large and significant. A ten percent change in the quality of structural policies (or the Rule of Law) towards OECD standards is shown to raise annual growth by about 2.5 percent. To control for endogeneity, we instrument using the hierarchy of institutions hypothesis and find that it holds robust explanatory power. We also document that early reformers reap the greatest benefits, but that it is never too late to begin structural policy reforms.

Suggested Citation

Eicher, Theo S. and Schreiber, Till, Structural Policies and Growth: Time Series Evidence from a Natural Experiment (May 8, 2012). Available at SSRN: https://ssrn.com/abstract=2054967 or http://dx.doi.org/10.2139/ssrn.2054967

Theo S. Eicher (Contact Author)

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Till Schreiber

affiliation not provided to SSRN

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