From Policy to Capital: Assessing the Impact of Structural Reforms on Gross Capital Inflows

63 Pages Posted: 7 Aug 2024

See all articles by Christos Mavrogiannis

Christos Mavrogiannis

Department of Economics, University of Patras

Athanasios Tagkalakis

Bank of Greece; University of Patras

Date Written: April 01, 2024

Abstract

Utilizing a narrative database on structural reforms in 25 OECD countries from 1985 to 2020, we investigate the effects of labor and product market reforms on gross capital inflows. By applying the local projection method and addressing reform endogeneity with the Augmented Inverse Probability Weighted estimator, we find that structural reforms have a positive medium-term effect on both direct and portfolio investment. In particular, reforms boost investment, especially in environments of high quality financial institutions and amid low public debt. Furthermore, building on a new indicator of cabinet policy orientation, we find that newly elected market-oriented cabinets have a positive effect on direct investment inflows. Product market reforms are more conducive to the inflow of direct investment under cabinets that prefer a state-oriented economy. Labor market reforms significantly boost direct investment and portfolio investment under governments favoring a market-oriented economy.

Keywords: direct investment, portfolio investmenT, gross capital inflows, structural reforms, product market reforms, labor market reforms, policy orientation

JEL Classification: F21, F41, J08, L51, O16

Suggested Citation

Mavrogiannis, Christos and Tagkalakis, Athanasios, From Policy to Capital: Assessing the Impact of Structural Reforms on Gross Capital Inflows (April 01, 2024). Bank of Greece Working Paper No. 328, Available at SSRN: https://ssrn.com/abstract=4918687

Christos Mavrogiannis

Department of Economics, University of Patras

University Campus, Rio
Patras, 26500
Greece

Athanasios Tagkalakis (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

University of Patras

Patra
Greece

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