The effects of structural reforms on economic growth

Abstract

This study investigates the effects of structural reforms in fiscal, financial, trade, and real sectors on economic growth for 56 countries within the IMF-Supported Program over the 2002-19 period. Using a novel database (IMF Monitoring of Fund Arrangements-MONA), it constructs new structural reform indexes for each sector employing the Z-score approach. The present study highlights that all structural reforms except for real sector reforms in all models, constructed based on the extended Cobb-Douglas production function, have a positive and statistically significant impact on economic growth. The robustness of the models is confirmed by using two different structural reform indexes for each sector and two different estimators considering cross-sectional dependence. Empirical findings point to the structural reforms being potentially key factors that provide strong long-term growth performance for countries. Hence, along with the relevant traditional policies and sufficiently developed institutions, policymakers should extend the structural reforms to lift potential growth and provide lasting economic recovery.