Why are socially beneficial and welfare-increasing reforms not implemented? Sometimes the answer is that various pressure groups manage to stop reforms that are not to their own benefit even though they may be beneficial on net to the whole society. But another possible answer is the genuine uncertainty about the effects of the reforms, in which case it may be optimal to move slowly and try to learn from both own mistakes and those of others. This possibility has so far received little attention in studies. If economic agents are unsure of whether a proposed reform will work, its realisation will be less likely. Despite the fact that economists may favour certain structural reforms, it is often difficult to establish a statistically significant positive relationship between reforms and economic growth.
Ian Babetskii and Nauro F. Campos (Does reform work? An econometric examination of the reform-growth puzzle, BOFIT Discussion Paper 13/2007) discuss this question in respect of reforms in transition economies. Because a significant number of structural reform programmes have been implemented in transition economies over the past 15 years, these countries provide a fertile ground for such research. Babetskii and Campos collected data from all the empirical studies conducted so far, which investigate the impact of reforms on economic performance in transition economies. The findings of these studies are assessed via meta-regression analysis, a statistical method for evaluating results of studies on a given topic. This paper aims at explaining whether eg certain characteristics of the data set or estimation methods affect the findings.
The work uses data collected from 43 econometric studies containing more than 300 individual estimates of the effects of reforms on growth in transition economies. Approximately a third of these coefficients are positive and statistically significant, another third are negative and significant, and the final third are not statistically significant. The study finds that the measurement of reform and controlling for institutions and initial conditions reduce the probability of reporting a significant and positive effect of reform on growth. It also appears that the effects of structural reforms are positive in the long run, but may slow the growth in the initiation stage. On the other hand, reforms differ also in this respect. For instance, liberalisation of foreign trade does not generate costs in the short run. |