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The impact of structural reforms on growth in Latin America and the Caribbean: an empirical estimation

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  • Escaith, Hubert
  • Morley, Samuel A.

Abstract

Summary Since the mid-1980s, most Latin American and Caribbean countries have adopted a package of structural reforms and there has been a good deal of curiosity about the effect of these reforms on growth. Thanks to influential theoretical models incorporating market openness and to a number of empirical studies, there is a fairly widespread consensus in the literature that in general this effect has been positive. Yet, there appear to be serious methodological problems in the econometric analysis that has been used. This paper presents an evaluation of the impact of trade and capital account liberalization, tax and financial sector reform and privatization, starting from a statistical model estimated using data collected for 17 countries of the region for the period 1970-1996. In line with the literature, the results show that growth was responsive to investment in physical as well as in human capital. Furthermore there is evidence of a positive feedback between the level of education and capital formation. The results also strongly support the positive contribution to growth of a stable macroeconomic environment. In the aggregate, the reforms did not have a significant direct impact on the growth rate, because the different individual components of the reform package have offsetting effects. Tax reform has a positive and lasting impact on growth; capital account reform also raises the growth rate, but only up to a certain point. The other reforms, in particular trade reform, do not seem to have a robust or significant impact on the growth rate, beyond the effect they may have through the other variables in the model. On the contrary, the speed of reform matters a lot, and the more rapid the process of reform, the slower the growth rate. The impact of macroeconomic or investment variables seems to be much more homogeneous across countries than the output response to structural reforms. A direction for future work would be to acknowledge this heterogeneity and attempt to identify why countries differed in their response to reforms, using more appropriate econometric procedures. Resumen La mayoría de los países de América latina y del Caribe adoptó programas de reformas estructurales a partir de la mitad de los años ochenta; la evaluación de los efectos que tuvieron estos programas sobre el crecimiento ha despertado mucho interés. Bajo la influencia de una fuerte corriente teórica en favor de la apertura, y gracias a los resultados de varios estudios empíricos, se ha definido un consenso bastante amplio entorno al efecto positivo de las reformas. Sin embargo, la metodología usada en estos estudios empíricos padece de varios problemas. Este trabajo presenta una evaluación propia de los impactos de la liberalización de las cuentas comerciales y de capital, de las reformas tributarias y financieras y de la privatización, en base a un modelo estadístico usando datos de 17 países de la región para el período 1970-1996. Conforme a los resultados obtenidos en otros estudios, los resultados muestran que el ritmo de crecimiento respondió muy favorablemente a la inversión, tanto en capital físico como en su componente humano. Además, se observó que educación e inversión se potencian mutuamente. Los resultados demuestran claramente la contribución positiva de la estabilidad macroeconómica para el crecimiento. En término general, las reformas no tuvieron un efecto significante sobre el crecimiento, ya que sus diferentes componentes demostraron tener impactos contrarios. La reforma tributaria tiene una influencia positiva y creciente, mientras que el efecto positivo de la liberalización de la cuenta de capital es más limitado. Las otras reformas, en particular la liberalización comercial, no han tenido efectos observables y significativos sobre el crecimiento, más allá de los que tuvieron en otras variables claves ya incorporadas en el modelo. En contraste, la velocidad con cual se ejecutan las reformas es muy importante; lo más rápido el proceso, lo menor la tasa de crecimiento. El efecto de las variables macroeconómicas y de la inversión parece ser mucho más homogéneo entre los países que lo fue la respuesta del crecimiento a las reformas estructurales. Una dirección para futuras investigaciones sería de reconocer esta heterogeneidad y usar metodologías estadísticas más adecuadas para identificar porqué los países han diferido en su respuesta a los programas de reforma.

Suggested Citation

  • Escaith, Hubert & Morley, Samuel A., 2000. "The impact of structural reforms on growth in Latin America and the Caribbean: an empirical estimation," Macroeconomía del Desarrollo 1, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  • Handle: RePEc:ecr:col037:5331
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    References listed on IDEAS

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    1. Trevino, Len J. & Thomas, Douglas E. & Cullen, John, 2008. "The three pillars of institutional theory and FDI in Latin America: An institutionalization process," International Business Review, Elsevier, vol. 17(1), pages 118-133, February.
    2. Stallings, Barbara & Weller, Jürgen, 2001. "Job creation in Latin America in the 1990s: the foundation for social policy," Macroeconomía del Desarrollo 5, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    3. Mariam Camarero & Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann & Cecilio Tamarit, 2016. "Trade Openness and Income: A Tale of Two Regions," The World Economy, Wiley Blackwell, vol. 39(3), pages 386-408, March.
    4. Escaith, Hubert & Morley, Samuel, 2001. "El efecto de las reformas estructurales en el crecimiento económico de la América Latina y el Caribe. Una estimación empírica," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(272), pages 469-513, octubre-d.
    5. Alvaro CUERVO-CAZURRA & Luis Alfonso DAU, 2008. "Structural Reform And Firm Profitability In Developing Countries," William Davidson Institute Working Papers Series wp940, William Davidson Institute at the University of Michigan.
    6. Bandeira, Andrea C. & García, Fernando, 2002. "Reforms and growth in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    7. Atsushi Fukumi & Shoji Nishijima, 2010. "Institutional quality and foreign direct investment in Latin America and the Caribbean," Applied Economics, Taylor & Francis Journals, vol. 42(14), pages 1857-1864.
    8. Hofstetter, Marc, 2008. "Disinflations in Latin America and the Caribbean: A free lunch?," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 327-345, March.
    9. Anil Hira, 2011. "Structural Adjustment in Latin America: From Crisis to Ambiguity," Chapters,in: International Handbook on the Economics of Integration, Volume I, chapter 19 Edward Elgar Publishing.
    10. Stallings, Barbara, 2001. "Globalization and liberalization: the impact on developing countries," Macroeconomía del Desarrollo 4, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    11. Escaith, Hubert, 2001. "The small economies of Latin America and the Caribbean," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    12. Birdsall, Nancy & de la Torre, Augusto & Caicedo, Felipe Valencia, 2010. "The Washington consensus : assessing a damaged brand," Policy Research Working Paper Series 5316, The World Bank.
    13. Escaith, Hubert, 2005. "Les petites économies d'Amérique latine et des Caraïbes," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), June.
    14. Alessia LO TURCO, 2005. "The Growth Impact of Structural Reforms in Latin America. Another Look," Working Papers 235, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    15. Jeronimo Zettelmeyer, 2006. "Growth and Reforms in Latin America; A Survey of Facts and Arguments," IMF Working Papers 06/210, International Monetary Fund.
    16. Gutiérrez, Mario A., 2007. "Economic growth in Latin America and the Caribbean: growth transitions rather than steady states," Macroeconomía del Desarrollo 58, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    17. Miguel Székely & Nancy Birdsall & Jere R. Behrman, 2000. "Economics Reform and Wage Differentials in Latin America," Research Department Publications 4235, Inter-American Development Bank, Research Department.
    18. Paunovic, Igor, 2000. "Growth and reforms in Latin America and the Caribbean in the 1990s," Series Históricas 70, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    19. Hofman, André A., 2001. "Long run economic development in Latin America in a comparative perspective: proximate and ultimate causes," Macroeconomía del Desarrollo 8, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    20. Morley, Samuel A., 2001. "The income distribution problem in Latin America and the Caribbean," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 65 edited by Eclac, May.
    21. Mário Gómez & Cezar Guedes, 2009. "Globalization Dynamics in Latin America: South Cone and Iberian Investments," Working Papers Department of Economics 2009/13, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.

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