<p><strong>A rather positive view of structural reforms</strong></p>

<p>In their recent Economic Policy Reforms 2016, <a href="http://www.keepeek.com/Digital-Asset-Management/oecd/economics/economic-policy-reforms-2016_growth-2016-en#page17" rel="nofollow">Going for Growth Interim Report</a>, the OECD reviews the main growth challenges faced by OECD and selected non-OECD countries and takes stock of the progress made since 2015 in the adoption and implementation of structural policy reforms to address these challenges. </p>

<p>The chapter 2 in particular reviews the main issues related to the short-term impact of structural reforms in different macroeconomic contexts and takes stock of existing theoretical and empirical studies. It lays out the case of reforms introduced in "normal" and "bad" times. It identifies the main channels through which structural reforms influence <strong><em>rather favorably</em></strong> short-term activity through consumption, investment and net exports. The chapter discusses </p>

<ol>
<li>Model-based assessments taken from studies that make use of Dynamic Stochastic General Equilibrium (DSGE) models for the analysis of specific reforms</li>
<li>Empirical analysis based on aggregate or sectoral data. Look in particular at Bouis, R., O. Causa, L. Demmou, and R. Duval (2012), "<a href="http://izajolp.springeropen.com/articles/10.1186/2193-9004-1-12" rel="nofollow">How quickly Does Structural Reform Pay Off?</a> An Empirical Analysis of the Short-Term Effects of Unemployment Benefits Reform", <em>IZA Journal of Labor Policy 2012</em>, 1:12.</li>
<li>Empirical analysis based on micro studies. In this category, a recent paper that is not reviewed in the OECD report but in a VOX CEPR column on <a href="http://voxeu.org/article/impact-structural-reforms-eurozone-firm-level-data" rel="nofollow">Eurozone rebalancing: Are we on the right track for growth? Insights from the CompNet micro-based data</a>.  Their results are "in line with the postulate that the crisis and ensuing structural policies may be generating ‘cleansing effects’." The author are cautious, however. "It is obvious that the evidence presented is still preliminary and only suggestive of the potential use of the dataset."</li>
</ol>

<p>Look also at Bouis, R., O. Causa, L. Demmou, and A. Zdzienicka (2012), "<a href="http://dx.doi.org/10.1787/5k9csvk4d56d-en" rel="nofollow">The Short-Term Effects of Structural Reforms: An Empirical Analysis</a>", OECD Economics Department Working Papers, No. 949. They conclude</p>

<blockquote>
  <p>This analysis indicates that the benefits from reforms typically take time to fully materialise. When significant effects are found in the short run, reforms seldom involve significant aggregate economic losses; on the contrary they often deliver some benefits. The absence of major depressing effects does not lend support to the view that reforms should be in general accompanied by substantial macroeconomic policy easing in order to deliver some short-term gains. Nevertheless, there is also tentative evidence that some labour market reforms (e.g. of unemployment benefit systems and job protection) pay off more quickly in good times than in bad times, and can even entail short-term losses in severely depressed economies.</p>
</blockquote>

<hr>

<p><strong>A rather negative view of structural reforms</strong></p>

<p>However, when <strong>Krugman</strong> sees influential people calling for structural reform as the universal answer to all economic problems, he gets angry. He considers that <a href="http://krugman.blogs.nytimes.com/2014/02/21/structural-reform-is-the-last-refuge-of-scoundrels/" rel="nofollow">Structural Reform is the Last Refuge of Scoundrels</a>. For Krugman, traditionally, structural reform was offered as an answer to the problem of stagflation, which makes a fair bit of sense according to <a href="http://krugman.blogs.nytimes.com/2014/11/20/structural-deformity/" rel="nofollow">him</a>.</p>

<p>Dany <strong>Rodrik</strong> also opposes structural reforms notably in his paper <a href="https://www.sss.ias.edu/files/pdfs/Rodrik/Research/Goodbye-Washington.pdf" rel="nofollow">Goodbye Washington Consensus, Hello Washington Confusion?</a>. He argues that ``evidence has come a more skeptical reading of the cross-national relationship between policy reform and economic growth'' (Page 5).</p>

<p>Moreover, <a href="http://www.hvtc.edu.vn/Portals/0/files/635870649753930599LeadershipandGrowth.pdf#page=165" rel="nofollow">Acemoglu and Robinson (2010, chap 5)</a> document that </p>

<blockquote>
  <p>The  attempt  to  induce  African  countries  to   implement institutional  reforms  such as reducing  distortions was not a success   (van  der  Walle,  1993,  2000),  mostly  for  the  reason that international  financial   institutions  (IFIs) did  not  take into  account  the  political  rationale  for  the  inefficient policies they  were  trying  to  reform.  The  most  dramatic  example  of this  is   discussed by Herbst (1990) and Reno (1998).  They argued that attempts by IFIs to  induce   downsizing   of   the   public   sector,   for example  by closing  down unprofitable parastatals,  had  played  an  important  role  in  creating  civil war  in   Sierra  Leone  and  Liberia.</p>
</blockquote>

CC BY-SA 3.0
2016-05-05T01:59:17.090Z
This is useful information. DO you know of any evidence they site *in favor* of these reforms?
Fix.B.
CC BY-SA 3.0
2016-05-05T03:14:31.230Z
The OECD provides evidence in favor of these reforms mainly based on their own studies (see Appendix 2.1, p.84 and Chapter 2). Do you want me to expand my answer along these lines?
emeryville
CC BY-SA 3.0
2016-05-05T03:16:50.793Z
yes!, that would be great!
Fix.B.
CC BY-SA 3.0
2016-05-05T07:32:28.520Z
they haven't worked in southern europe, though.
CptEric
CC BY-SA 3.0
2016-05-05T01:01:29.560Z
2016-05-05T03:43:58.493Z
2016-05-05T03:43:58.493Z
emeryville
<p>The typical recipe for countries to improve their growth rate and escape high indebtedness is to reduce expenditure and implement structural reform. What do people use as evidence of structural reform working?</p>

<economic-growth><fiscal-policy><financial-crises>
What do economist state as evidence that "structural reform" works?
Fix.B.
# What do economist state as evidence that "structural reform" works?

(Asked by: username_0 on 2016-05-05)

The typical recipe for countries to improve their growth rate and escape high indebtedness is to reduce expenditure and implement structural reform. What do people use as evidence of structural reform working?

**Tags:** economic-growth, fiscal-policy, financial-crises

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## 1 answers

### Answer by username_1 on 2016-05-05. Score: 4 | Accepted answer

**A rather positive view of structural reforms**

In their recent Economic Policy Reforms 2016, [Going for Growth Interim Report](http://www.keepeek.com/Digital-Asset-Management/oecd/economics/economic-policy-reforms-2016_growth-2016-en#page17), the OECD reviews the main growth challenges faced by OECD and selected non-OECD countries and takes stock of the progress made since 2015 in the adoption and implementation of structural policy reforms to address these challenges.

The chapter 2 in particular reviews the main issues related to the short-term impact of structural reforms in different macroeconomic contexts and takes stock of existing theoretical and empirical studies. It lays out the case of reforms introduced in "normal" and "bad" times. It identifies the main channels through which structural reforms influence ***rather favorably*** short-term activity through consumption, investment and net exports. The chapter discusses

1. Model-based assessments taken from studies that make use of Dynamic Stochastic General Equilibrium (DSGE) models for the analysis of specific reforms
2. Empirical analysis based on aggregate or sectoral data. Look in particular at Bouis, R., O. Causa, L. Demmou, and R. Duval (2012), "[How quickly Does Structural Reform Pay Off?](http://izajolp.springeropen.com/articles/10.1186/2193-9004-1-12) An Empirical Analysis of the Short-Term Effects of Unemployment Benefits Reform", *IZA Journal of Labor Policy 2012*, 1:12.
3. Empirical analysis based on micro studies. In this category, a recent paper that is not reviewed in the OECD report but in a VOX CEPR column on [Eurozone rebalancing: Are we on the right track for growth? Insights from the CompNet micro-based data](http://voxeu.org/article/impact-structural-reforms-eurozone-firm-level-data). Their results are "in line with the postulate that the crisis and ensuing structural policies may be generating ‘cleansing effects’." The author are cautious, however. "It is obvious that the evidence presented is still preliminary and only suggestive of the potential use of the dataset."

Look also at Bouis, R., O. Causa, L. Demmou, and A. Zdzienicka (2012), "[The Short-Term Effects of Structural Reforms: An Empirical Analysis](http://dx.doi.org/10.1787/5k9csvk4d56d-en)", OECD Economics Department Working Papers, No. 949. They conclude

> This analysis indicates that the benefits from reforms typically take time to fully materialise. When significant effects are found in the short run, reforms seldom involve significant aggregate economic losses; on the contrary they often deliver some benefits. The absence of major depressing effects does not lend support to the view that reforms should be in general accompanied by substantial macroeconomic policy easing in order to deliver some short-term gains. Nevertheless, there is also tentative evidence that some labour market reforms (e.g. of unemployment benefit systems and job protection) pay off more quickly in good times than in bad times, and can even entail short-term losses in severely depressed economies.

---

**A rather negative view of structural reforms**

However, when **Krugman** sees influential people calling for structural reform as the universal answer to all economic problems, he gets angry. He considers that [Structural Reform is the Last Refuge of Scoundrels](http://krugman.blogs.nytimes.com/2014/02/21/structural-reform-is-the-last-refuge-of-scoundrels/). For Krugman, traditionally, structural reform was offered as an answer to the problem of stagflation, which makes a fair bit of sense according to [him](http://krugman.blogs.nytimes.com/2014/11/20/structural-deformity/).

Dany **Rodrik** also opposes structural reforms notably in his paper [Goodbye Washington Consensus, Hello Washington Confusion?](https://www.sss.ias.edu/files/pdfs/Rodrik/Research/Goodbye-Washington.pdf). He argues that ``evidence has come a more skeptical reading of the cross-national relationship between policy reform and economic growth'' (Page 5).

Moreover, [Acemoglu and Robinson (2010, chap 5)](http://www.hvtc.edu.vn/Portals/0/files/635870649753930599LeadershipandGrowth.pdf#page=165) document that

> The attempt to induce African countries to implement institutional reforms such as reducing distortions was not a success (van der Walle, 1993, 2000), mostly for the reason that international financial institutions (IFIs) did not take into account the political rationale for the inefficient policies they were trying to reform. The most dramatic example of this is discussed by Herbst (1990) and Reno (1998). They argued that attempts by IFIs to induce downsizing of the public sector, for example by closing down unprofitable parastatals, had played an important role in creating civil war in Sierra Leone and Liberia.

> **Comments:**
> **username_0**: This is useful information. DO you know of any evidence they site *in favor* of these reforms?  
> **username_1**: The OECD provides evidence in favor of these reforms mainly based on their own studies (see Appendix 2.1, p.84 and Chapter 2). Do you want me to expand my answer along these lines?  
> **username_0**: yes!, that would be great!  
> **username_2**: they haven't worked in southern europe, though.  

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