Growth-Equity Trade-Offs in Structural Reforms

47 Pages Posted: 18 Jan 2018

See all articles by Jonathan D. Ostry

Jonathan D. Ostry

Georgetown University; International Monetary Fund (IMF)

Andrew Berg

International Monetary Fund (IMF) - Developing Country Studies Division

Siddharth Kothari

International Monetary Fund (IMF)

Date Written: January 2018

Abstract

Do structural reforms that aim to boost potential output also change the distribution of income? We shed light on this question by looking at the broad patterns in the cross-country data covering advanced, emerging-market, and low-income countries. Our main finding is that there is indeed evidence of a growth-equity tradeoff for some important reforms. Financial and capital account liberalization seem to increase both growth and inequality, as do some measures of liberalization of current account transactions. Reforms aimed at strengthening the impartiality of and adherence to the legal system seem to entail no growth-equity tradeoff-such reforms are good for growth and do not worsen inequality. The results for our index of network reforms as well as our measure of the decentralization of collective labor bargaining are the weakest and least robust, potentially due to data limitations. We also ask: If some structural reforms worsen inequality, to what degree does this offset the growth gains from the reforms themselves? While higher inequality does dampen the growth benefits, the net effect on growth remains positive for most reform indicators.

Keywords: Structural Reforms, Growth, Inequality, Macroeconomic Analyses of Economic Development, Planning, Coordination, and Reform

JEL Classification: O11, O15, O47, P11

Suggested Citation

Ostry, Jonathan D. and Berg, Andrew and Kothari, Siddharth, Growth-Equity Trade-Offs in Structural Reforms (January 2018). IMF Working Paper No. 18/5, Available at SSRN: https://ssrn.com/abstract=3104571

Jonathan D. Ostry (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Andrew Berg

International Monetary Fund (IMF) - Developing Country Studies Division ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8843 (Phone)
202-589-8843 (Fax)

Siddharth Kothari

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
29
Abstract Views
333
PlumX Metrics