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The Effects of Structural Reforms in Advanced, Emerging and Developing Economies

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Hyatt Regency Atlanta, Hanover D & E
Hosted By: Association for Comparative Economic Studies
  • Chair: Iikka Korhonen, Bank of Finland

Structural Reforms, Innovation and Economic Growth

Kosuke Aoki
,
University of Tokyo
Naoka Hara
,
Bank of Japan
Maiko Koga
,
Bank of Japan

Abstract

This paper constructs a growth model of the distance from the world technology frontier to argue
that incentives to innovate and the government’s decision on implementing reforms can be mutually reinforcing. This complementarity may, however, result in a country falling into a self- perpetuating low productivity trap. Certain types of structural change, initiated either by the private sector or by the government, can help the country to escape from this trap.

Employment Protection Deregulation and Labor Shares in Advanced Economies

Gabriele Cimininelli
,
International Monetary Fund
Romain Duval
,
International Monetary Fund
David Fuceri
,
International Monetary Fund

Abstract

Labor market deregulation, intended to boost productivity and employment, is one plausible, yet little studied, driver of the decline in labor shares that took place across most advanced economies since the early 1990s. This paper assesses the impact of job protection deregulation in a sample of 26 advanced economies over the period 1970-2015, using a newly constructed dataset of major reforms to employment protection legislation for regular contracts. We apply the local projection method to estimate the dynamic response of the labor share to our reform events at both the country and the country-industry levels. For the latter, we employ a differences-in-differences identification strategy using two identifying assumptions grounded in theory—namely that job protection deregulation should have larger negative effects in industries characterized by (i) a higher “natural” propensity to adjust the workforce, and (ii) a lower elasticity of substitution between capital and labor. We find a statistically significant, economically large and robust negative effect of deregulation on the labor share. In particular, illustrative back-of-the-envelope calculations suggest that job protection deregulation may have contributed about 15 percent to the average labor share decline in advanced economies. Together with existing evidence regarding the macroeconomic gains from job protection and other labor market reforms, our results also point to the need for policymakers to address efficiency-equity trade-offs when designing such reforms.

Rent Creation and Sharing: New Measures and Impacts on TFP

Gilbert Cette
,
Bank of France and Aix-Marseille University
Jimmy Lopez
,
University of Bourgogne Franche-Comté; Banque de France
Jacque Mairesse
,
Maastrich University

Abstract

This analysis proposes new measures of rent creation (mark-up) and workers’ share of rents on cross-country-industry panel data. We confirm their relevance on an ‘institution and growth’ framework. First, we find that anti-competitive non-manufacturing regulations affect positively rent creation, whereas employment protection legislation boosts wages, particularly for low skill workers. However, these wage increases are offset by a negative impact on hours worked, leading to a non-significant impact on workers’ share of rents. Second, using the regulation indicators as instruments, we find that rent creation and workers’ share of rents have both substantial negative impacts on Total Factor Productivity.

Competition, Core-Periphery and Currency Unions

Nauro Campos
,
Brunel University
Corrado Macchiarelli
,
Brunel University London

Abstract

Does competition explain core-periphery dynamics in currency unions? Core-periphery distances are often estimated from time-invariant binary classifications which rely mostly upon demand, not supply, disturbances. We derive new dynamic, continuous (not binary) and theory-based measures by explicitly modelling supply shocks as over-identifying restrictions. Our panel estimates suggest that competition (flexible product market regulations or imports) and euro adoption significantly decrease the likelihood of countries being classified as peripheral. Using the Phillips-Sul method (Econometrica 2007), we identify hard-core, soft-core and periphery groups and study how these change over time. We find the original core-periphery divide in Europe weakens substantially after 1992.

Structural Reforms and the Role of Human Capital: Evidence from OECD Countries

Balasz Egert
,
OECD

Abstract

It is commonly accepted in the theoretical growth literature that human capital is an important driver of economic outcomes. Yet researchers have been struggling to identify a solid positive empirical relationship between human capital and economic growth or productivity in the academic literature and recent OECD work. Against this backdrop, this paper first reviews existing empirical work and shows the fragility of the relationship between human capital and economic growth in the literature. Second, it discusses different definitions of human capital, related conceptual issues, measurement difficulties and problems related to data availability. Third, the paper calculates alternative measures and applies them in productivity and growth regressions, including product and labour market reforms, for a sample of OECD countries. It also analyses whether human capital interacts with structural reforms and whether it attenuates or accentuates the positive long-term impact of pro-growth reforms.
Discussant(s)
Iikka Korhonen
,
Bank of Finland
Sergei Guriev
,
European Bank for Reconstruction and Development
JEL Classifications
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights