Removing the Constraints for Growth: Some Guidelines Some Guidelines
One strand of the empirical growth literature has cast doubt on the ability of the policy recommendations from Washington Consensus in enhancing growth. They argue that not only the design but also the policy mix has an important country-specific component (e.g. Hausmann, Rodrik and Velasco, 2005 and Zettelmeyer, 2006). We argue that the effectiveness of policies in promoting growth depends upon the set of structural policies implemented or already existing in the country. This paper empirically examines the role of policy complementarities in explaining growth and development from two dimensions. First, we construct a regression-based policy index in the same vein of Burnside and Dollar (2000), and we decompose this index afterwards into domestic and outward policy indices. Second, we evaluate the role of policy complementarities in the growth process by interacting our policy index with specific country characteristics that affect growth. We repeat the same exercise with the domestic and outward policy indices. We found that outward oriented and domestic policies are highly complements to each other. Specifically, the growth effects of trade and financial openness are enhanced when domestic policies are correct and, moreover, financial and trade openness are also complements. Regarding structural factors, we found that human capital increase growth as expected but it is neither a complement nor a substitute of economic policy. On the other hand institutions and financial depth are complements with economic policy. This could be an explanation why some countries have stabilized their economies but they are not growing faster, this could be due to low financial development or bad institutions. Finally, we should remark that in addition to the Fatas and Mihov (2006) result that policy volatility hurts growth, we find that a good policy environment could propel growth by mitigating the negative effect of aggregate volatility and, more specifically, the volatility of external shocks.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (562) 354-4303
Fax: (562) 553-1664
Web page: http://www.economia.puc.cl
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jay C. Shambaugh & Julian di Giovanni, 2006.
"The Impact of Foreign Interest Rates on the Economy: The Role of the Exchange Rate Regime,"
The Institute for International Integration Studies Discussion Paper Series
- di Giovanni, Julian & Shambaugh, Jay C., 2008. "The impact of foreign interest rates on the economy: The role of the exchange rate regime," Journal of International Economics, Elsevier, vol. 74(2), pages 341-361, March.
- Julian di Giovanni & Jay C. Shambaugh, 2006. "The Impact of Foreign Interest Rateson the Economy; The Role of the Exchange Rate Regime," IMF Working Papers 06/37, International Monetary Fund.
- Julian di Giovanni & Jay C. Shambaugh, 2007. "The Impact of Foreign Interest Rates on the Economy: The Role of the Exchange Rate Regime," NBER Working Papers 13467, National Bureau of Economic Research, Inc.
- Oliveira Martins, Joaquim & De Macedo, Jorge Braga, 2008.
"Growth, Reform Indicators and Policy Complementarities,"
Economics Papers from University Paris Dauphine
123456789/7960, Paris Dauphine University.
- Jorge Braga De Macedo & Joaquim Oliveira Martins, 2008. "Growth, reform indicators and policy complementarities," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(2), pages 141-164, 04.
- Macedo, Jorge Braga de & Martins, Joaquim Oliveira, 2006. "Growth, Reform indicators and Policy complementarities," FEUNL Working Paper Series wp484, Universidade Nova de Lisboa, Faculdade de Economia.
- Jorge Braga de Macedo & Joaquim Oliveira Martins, 2006. "Growth, Reform Indicators and Policy Complementaries," NBER Working Papers 12544, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:ioe:doctra:366. 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: (Jaime Casassus)
If references are entirely missing, you can add them using this form.