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Robust political economy correlates of major product and labor market reforms in advanced economies: Evidence from BAMLE for logit models

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  • Duval, Romain
  • Furceri, Davide
  • Miethe, Jakob

Abstract

The political economy literature has put forward a multitude of hypotheses regarding the drivers of structural reforms, but few, if any, empirically robust findings have emerged thus far. To make progress, we draw a parallel with model uncertainty in the growth literature and provide a new version of the Bayesian averaging of maximum likelihood estimates (BAMLE) technique tailored to binary logit models. Relying on a new database of major past labor and product market reforms in advanced countries, we test a large set of variables for robust correlation with reform in each area. We find widespread support for the crisis-induces-reform hypothesis, as high unemployment and economic crises are robustly correlated to structural reforms. We also find evidence of reform convergence-that is, countries with tighter regulation are more prone to liberalize. Reforms are more likely when other countries also undertake them and when there is formal pressure to implement them. Other robust correlates are more specific to certain areas-for example, international pressure and political factors are most relevant for product market and job protection reforms, respectively.

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  • Duval, Romain & Furceri, Davide & Miethe, Jakob, 2020. "Robust political economy correlates of major product and labor market reforms in advanced economies: Evidence from BAMLE for logit models," Munich Reprints in Economics 84714, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenar:84714
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    Cited by:

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    2. Florian Haelg & Niklas Potrafke & Jan-Egbert Sturm, 2022. "The determinants of social expenditures in OECD countries," Public Choice, Springer, vol. 193(3), pages 233-261, December.
    3. Peruzzi, Michele & Terzi, Alessio, 2021. "Accelerating Economic Growth: The Science beneath the Art," Economic Modelling, Elsevier, vol. 103(C).
    4. Sanjeev Gupta & João Tovar Jalles, 2020. "On the Political Economy Determinants of Tax Reforms: Evidence from Developing Countries," Working Papers REM 2020/0151, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    5. Jakob de Haan & Rasmus Wiese, 2022. "The impact of product and labour market reform on growth: Evidence for OECD countries based on local projections," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(4), pages 746-770, June.
    6. Giuseppe De Luca & Jan Magnus & Franco Peracchi, 2022. "Asymptotic properties of the weighted average least squares (WALS) estimator," Tinbergen Institute Discussion Papers 22-022/III, Tinbergen Institute.

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