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Structural Policies and Growth: Time Series Evidence from a Natural Experiment

  • Theo Eicher

    ()

    (Department of Economics, University of Washington)

  • Till Schreiber

    ()

    (Department of Economics, College of William and Mary)

Documenting the long term impact of structural policies on economic performance has generated tremendous interest in the development literature. In contrast, contemporary effects of structural policies are difficult to establish. Structural policies seldom change sufficiently in the short run, and accepted instruments to control for endogeneity in cross sections are inappropriate for time series analysis. In this paper we utilize an eleven year panel of 26 transition countries to identify short term effects of structural policies that are large and significant. A ten percent change in the quality of structural policies (or the Rule of Law) towards OECD standards is shown to raise annual growth by about 2.5 percent. To control for endogeneity, we instrument using the hierarchy of institutions hypothesis and find that it holds robust explanatory power. We also document that early reformers reap the greatest benefits, but that it is never too late to begin structural policy reforms.

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Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 48.

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Length: 22 pages
Date of creation: 15 Nov 2006
Date of revision:
Handle: RePEc:cwm:wpaper:48
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