Reforms and Investments – The Benefits of Join Implementation

The joint implementation of structural reforms and investments has gained traction in policy initiatives and recommendations, including those aimed at supporting productivity growth and the competitiveness of the European economy. This brief collects arguments, grounded in economic theory and empirical evidence, supportive of investment-reform complementarity: (i) reforms can improve the efficiency of public investment spending by improving the government’s administrative capacity; (ii) structural economic transformations require reforms and investments to rebalance incentives and modernise the economy’s production structure; (iii) reforms can help crowding in private investment; (iv) jointly implementing reforms and investments may improve macroeconomic stability; and (v) investment (funding) can act as material incentive facilitating the implementation of politically costly structural reforms. Depending on the policy area, the nature of reform-investment complementarity may vary.