IDEAS home Printed from https://ideas.repec.org/a/kap/openec/v29y2018i4d10.1007_s11079-018-9490-3.html
   My bibliography  Save this article

Can Reform Waves Turn the Tide? Some Case Studies using the Synthetic Control Method

Author

Listed:
  • Bibek Adhikari

    () (Illinois State University)

  • Romain Duval

    () (International Monetary Fund)

  • Bingjie Hu

    () (World Bank Group)

  • Prakash Loungani

    () (International Monetary Fund)

Abstract

A number of advanced economies carried out a sequence of extensive reforms of their labor and product markets in the 1990s and early 2000s. Using the Synthetic Control Method (SCM), this paper implements six case studies of well-known waves of reforms, those of New Zealand, Australia, Denmark, Ireland and Netherlands in the 1990s, and the labor market reforms in Germany in the early 2000s. In four of the six cases, GDP per capita was higher than in the control group as a result of the reforms. No difference between the treated country and its synthetic counterpart could be found in the cases of Denmark and New Zealand, which in the latter case may have partly reflected the implementation of reforms under particularly weak macroeconomic conditions. Overall, also factoring in the limitations of the SCM in this context, the results are suggestive of a positive but heterogenous effect of reform waves on GDP per capita.

Suggested Citation

  • Bibek Adhikari & Romain Duval & Bingjie Hu & Prakash Loungani, 2018. "Can Reform Waves Turn the Tide? Some Case Studies using the Synthetic Control Method," Open Economies Review, Springer, vol. 29(4), pages 879-910, September.
  • Handle: RePEc:kap:openec:v:29:y:2018:i:4:d:10.1007_s11079-018-9490-3
    DOI: 10.1007/s11079-018-9490-3
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11079-018-9490-3
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Nauro F Campos & Yuko Kinoshita, 2010. "Structural Reforms, Financial Liberalization, and Foreign Direct Investment," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 326-365, June.
    2. José G. Montalvo, 2011. "Voting after the Bombings: A Natural Experiment on the Effect of Terrorist Attacks on Democratic Elections," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1146-1154, November.
    3. Lewis Evans & Arthur Grimes & Bryce Wilkinson, 1996. "Economic Reform in New Zealand 1984-95: The Pursuit of Efficiency," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1856-1902, December.
    4. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 2007. "Electoral Rules and Government Spending in Parliamentary Democracies," Quarterly Journal of Political Science, now publishers, vol. 2(2), pages 155-188, May.
    5. Alberto Abadie & Javier Gardeazabal, 2003. "The Economic Costs of Conflict: A Case Study of the Basque Country," American Economic Review, American Economic Association, vol. 93(1), pages 113-132, March.
    6. Bibek Adhikari & James Alm, 2016. "Evaluating the Economic Effects of Flat Tax Reforms Using Synthetic Control Methods," Southern Economic Journal, Southern Economic Association, vol. 83(2), pages 437-463, October.
    7. Christian Dustmann & Bernd Fitzenberger & Uta Sch?nberg & Alexandra Spitz-Oener, 2014. "From Sick Man of Europe to Economic Superstar: Germany's Resurgent Economy," Journal of Economic Perspectives, American Economic Association, vol. 28(1), pages 167-188, Winter.
    8. Andreas Billmeier & Tommaso Nannicini, 2013. "Assessing Economic Liberalization Episodes: A Synthetic Control Approach," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 983-1001, July.
    9. Chadi S. Abdallah & William D. Lastrapes, 2012. "Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 94-125, October.
    10. Eduardo Cavallo & Sebastian Galiani & Ilan Noy & Juan Pantano, 2013. "Catastrophic Natural Disasters and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1549-1561, December.
    11. Tom Krebs & Martin Scheffel, 2013. "Macroeconomic Evaluation of Labor Market Reform in Germany," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(4), pages 664-701, December.
    12. Dorsett, Richard, 2013. "The effect of the Troubles on GDP in Northern Ireland," European Journal of Political Economy, Elsevier, vol. 29(C), pages 119-133.
    13. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
    14. Gregory DeAngelo & Benjamin Hansen, 2014. "Life and Death in the Fast Lane: Police Enforcement and Traffic Fatalities," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 231-257, May.
    15. Romain A Duval & Davide Furceri & Bingjie Hu & João Tovar Jalles & Huy Nguyen, 2018. "A Narrative Database of Major Labor and Product Market Reforms in Advanced Economies," IMF Working Papers 2018/019, International Monetary Fund.
    16. Smith, Brock, 2015. "The resource curse exorcised: Evidence from a panel of countries," Journal of Development Economics, Elsevier, vol. 116(C), pages 57-73.
    17. Jagdish Bhagwati, 2002. "Trade and Poverty in the Poor Countries," American Economic Review, American Economic Association, vol. 92(2), pages 180-183, May.
    18. Tommaso Nannicini & Andreas Billmeier, 2011. "Economies in Transition: How Important Is Trade Openness for Growth?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(3), pages 287-314, June.
    19. Tom Krebs & Martin Scheffel, 2013. "Macroeconomic Evaluation of Labor Market Reform in Germany," IMF Working Papers 2013/042, International Monetary Fund.
    20. Bauhoff, Sebastian, 2014. "The effect of school district nutrition policies on dietary intake and overweight: A synthetic control approach," Economics & Human Biology, Elsevier, vol. 12(C), pages 45-55.
    21. Cedric Tille & Kei-Mu Yi, 2001. "Curbing unemployment in Europe: are there lessons from Ireland and the Netherlands?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 7(May).
    22. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
    23. Hervé Boulhol & Alain de Serres & Margit Molnár, 2008. "The contribution of economic geography to GDP per capita," OECD Journal: Economic Studies, OECD Publishing, vol. 2008(1), pages 1-37.
    24. John Quiggin, 2001. "The Australian Productivity Miracle: A Sceptical View," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 8(4), pages 333-348.
    25. Tom Krebs & Martin Scheffel, 2013. "Macroeconomic Evaluation of Labor Market Reform in Germany," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(4), pages 664-701, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jones, Benjamin A. & Goodkind, Andrew L., 2019. "Urban afforestation and infant health: Evidence from MillionTreesNYC," Journal of Environmental Economics and Management, Elsevier, vol. 95(C), pages 26-44.
    2. Francesca Caselli, 2017. "Did the Exchange Rate Floor Prevent Deflation in the Czech Republic?," Review of Economics and Institutions, Università di Perugia, vol. 8(2).
    3. Ana Gouveia & Sílvia Santos & Gustavo Monteiro, 2017. "Short-run effects of product markets’ deregulation: a more productive, more efficient and more resilient economy?," GEE Papers 0069, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Mar 2017.
    4. Jones, Benjamin A., 2018. "Spillover health effects of energy efficiency investments: Quasi-experimental evidence from the Los Angeles LED streetlight program," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 283-299.
    5. Ara Stepanyan & Jorge Salas, 2020. "Distributional Implications of Labor Market Reforms: Learning from Spain's Experience," IMF Working Papers 2020/029, International Monetary Fund.
    6. Jonathan David Ostry & Andrew Berg & Siddharth Kothari, 2018. "Growth-Equity Trade-offs in Structural Reforms," IMF Working Papers 2018/005, International Monetary Fund.
    7. Antonio David & Frederic Lambert & Frederik G Toscani, 2019. "More Work to Do? Taking Stock of Latin American Labor Markets," IMF Working Papers 2019/055, International Monetary Fund.
    8. Setzer, Ralph & Stieglitz, Moritz, 2019. "Firm-level employment, labour market reforms, and bank distress," IWH Discussion Papers 15/2019, Halle Institute for Economic Research (IWH).
    9. Nauro Campos & Karim Aynaoui & Davide Furceri & Prakash Loungani, 2018. "Slow Recovery to Nowhere? Labor Market Issues in Advanced Economies: Introduction," Open Economies Review, Springer, vol. 29(4), pages 695-701, September.
    10. Gamberoni, Elisa & Gradeva, Katerina & Weber, Sebastian, 2016. "Firm responses to employment subsidies: a regression discontinuity approach to the 2012 Spanish labour market reform," Working Paper Series 1970, European Central Bank.
    11. WASHIMI Kazuaki, 2020. "Prospects of Private Equity Funds in Japan-Expectations toward Finance with Ideas and Commitment-," Bank of Japan Research Papers 20-12-11, Bank of Japan.
    12. Wang, Rui & Chen, Xi & Li, Xun, 2019. "Something in the Pipe: Flint Water Crisis and Health at Birth," IZA Discussion Papers 12115, Institute of Labor Economics (IZA).
    13. Ana Gouveia & Sílvia Santos & Inês Gonçalves, 2017. "The short-term impact of structural reforms on productivity growth: beyond direct effects," GEE Papers 0065, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Feb 2017.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bibek Adhikari & James Alm, 2016. "Evaluating the Economic Effects of Flat Tax Reforms Using Synthetic Control Methods," Southern Economic Journal, John Wiley & Sons, vol. 83(2), pages 437-463, October.
    2. Maïmouna Diakite & Jean-François Brun & Souleymane Diarra & Nasser Ary Tanimoune, 2017. "The effects of tax coordination on the tax revenue mobilization in West African Economic and Monetary Union (WAEMU)," Working Papers halshs-01535104, HAL.
    3. Bruno Ferman & Cristine Pinto & Vitor Possebom, 2020. "Cherry Picking with Synthetic Controls," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(2), pages 510-532, March.
    4. Kleis, Mischa & Moessinger, Marc-Daniel, 2016. "The long-run effect of fiscal consolidation on economic growth: Evidence from quantitative case studies," ZEW Discussion Papers 16-047, ZEW - Leibniz Centre for European Economic Research.
    5. Giulio Grossi & Patrizia Lattarulo & Marco Mariani & Alessandra Mattei & Ozge Oner, 2020. "Synthetic Control Group Methods in the Presence of Interference: The Direct and Spillover Effects of Light Rail on Neighborhood Retail Activity," Papers 2004.05027, arXiv.org, revised Feb 2021.
    6. Ehrich, Malte & Munasib, Abdul & Roy, Devesh, 2018. "The Hartz reforms and the German labor force," European Journal of Political Economy, Elsevier, vol. 55(C), pages 284-300.
    7. Bibek Adhikari, 2015. "When Does Introducing a Value-Added Tax Increase Economic Efficiency? Evidence from the Synthetic Control Method," Working Papers 1524, Tulane University, Department of Economics, revised Nov 2015.
    8. Essers, Dennis & Ide, Stefaan, 2019. "The IMF and precautionary lending: An empirical evaluation of the selectivity and effectiveness of the Flexible Credit Line," Journal of International Money and Finance, Elsevier, vol. 92(C), pages 25-61.
    9. Bofinger, Peter & Schnabel, Isabel & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2015. "Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201516.
    10. Björn Falkenhall & Jonas Månsson & Sofia Tano, 2020. "Impact of VAT Reform on Swedish Restaurants: A Synthetic Control Group Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 824-850, April.
    11. Chan, Ho Fai & Frey, Bruno S. & Gallus, Jana & Torgler, Benno, 2014. "Academic honors and performance," Labour Economics, Elsevier, vol. 31(C), pages 188-204.
    12. Ferman, Bruno & Pinto, Cristine, 2016. "Revisiting the Synthetic Control Estimator," MPRA Paper 73982, University Library of Munich, Germany.
    13. Setzer, Ralph & Stieglitz, Moritz, 2019. "Firm-level employment, labour market reforms, and bank distress," Working Paper Series 2334, European Central Bank.
    14. Dennis Essers & Stefaan Ide, 2017. "The IMF and precautionary lending : An empirical evaluation of the selectivity and effectiveness of the flexible credit line," Working Paper Research 323, National Bank of Belgium.
    15. Grier, Kevin & Maynard, Norman, 2016. "The economic consequences of Hugo Chavez: A synthetic control analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 1-21.
    16. Marchesi, Silvia & Masi, Tania, 2021. "Life after default. Private and official deals," Journal of International Money and Finance, Elsevier, vol. 113(C).
    17. Ho Fai Chan & Bruno S. Frey & Jana Gallus & Benno Torgler, 2013. "Does the John Bates Clark Medal boost subsequent productivity and citation success?," ECON - Working Papers 111, Department of Economics - University of Zurich.
    18. Kaul, Ashok & Klößner, Stefan & Pfeifer, Gregor & Schieler, Manuel, 2015. "Synthetic Control Methods: Never Use All Pre-Intervention Outcomes Together With Covariates," MPRA Paper 83790, University Library of Munich, Germany.
    19. Silvia Marchesi, 2016. "Life after default? Private vs. official sovereign debt restructurings," Development Working Papers 398, Centro Studi Luca d'Agliano, University of Milano, revised 26 Aug 2016.
    20. Castillo, Victoria & Figal Garone, Lucas & Maffioli, Alessandro & Salazar, Lina, 2017. "The causal effects of regional industrial policies on employment: A synthetic control approach," Regional Science and Urban Economics, Elsevier, vol. 67(C), pages 25-41.

    More about this item

    Keywords

    Structural reforms; Synthetic control method; Liberalization; Labor and productivity market reforms; Growth;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:openec:v:29:y:2018:i:4:d:10.1007_s11079-018-9490-3. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Springer Nature Abstracting and Indexing). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.