The Needle in the Haystack: What Drives Labor and Product Market Reforms in Advanced Countries?

60 Pages Posted: 1 Aug 2018  

Romain Duval

International Monetary Fund (IMF)

Davide Furceri

International Monetary Fund (IMF)

Jakob Miethe

German Institute for Economic Research (DIW Berlin)

Date Written: May 2018

Abstract

The political economy literature has put forward a multitude of hypotheses regarding the drivers of structural reforms, but few, if any, empirically robust findings have emerged thus far. To make progress, we draw a parallel with model uncertainty in the growth literature and provide a new version of the Bayesian averaging of maximum likelihood estimates (BAMLE) technique tailored to binary logit models. Relying on a new database of major past labor and product market reforms in advanced countries, we test a large set of variables for robust correlation with reform in each area. We find widespread support for the crisis-induces-reform hypothesis. Outside pressure increases the likelihood of reform in certain areas: reforms are more likely when other countries also undertake them and when there is formal pressure to implement them. Other robust correlates are more specific to certain areas-for example, international pressure and political factors are most relevant for product market and job protection reforms, respectively.

Keywords: Structural reforms; labor market; product market; deregulation; employment protection; unemployment benefits; Bayesian averaging of maximum likelihood estimates, Structural reforms, labor market, product market, deregulation, employment protection, unemployment benefits, Bayesian averaging of maximum likelihood estimates, Model Evaluation and Testing, Labor Economics Policies, Economics of Regulation

JEL Classification: C52, J08, J65, L51

Suggested Citation

Duval, Romain and Furceri, Davide and Miethe, Jakob, The Needle in the Haystack: What Drives Labor and Product Market Reforms in Advanced Countries? (May 2018). IMF Working Paper No. 18/101. Available at SSRN: https://ssrn.com/abstract=3221120

Romain Duval (Contact Author)

International Monetary Fund (IMF) ( email )

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

Davide Furceri

International Monetary Fund (IMF) ( email )

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

Jakob Miethe

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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