Structural Reforms and Productivity Growth in Developing Countries: Intra- or Inter-Reallocation Channel?

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Reigniting labour productivity growth in developing countries: Do structural reforms matter?

“…However, a disaggregated analysis of the impact of specific reforms on the intersectoral components suggests that product market, trade, and financial reforms do not induce structural change in developing countries. These results are consistent with those recently found by Konté et al (2021). Regarding the results in Table 3, the reforms of the financial sector, especially the liberalization of the banking sector, domestic finance, and market supervision, have a positive and statistically significant effect on intrasectoral productivity growth.…”

“…The between-effects component of productivity growth, also called structural change, measures the movement of labour between economic sectors in a country. In other words, it measures a reallocation of resources from sectors with low productivity levels to sectors with high productivity levels (Dieppe 2021;Konté et al 2021). For example, most East Asian countries have benefited from large structural transformation bonuses that have boosted labour productivity growth.…”

Productivity growth effects of structural reforms: Evidence from developing countries

“…the estimator remains consistent even if one of the models (treatment or outcome) is misspecified. Thus, our study differs from that of Konté et al (2021) in several respects. First, our study uses recent data on structural reforms constructed by Alesina et al (2020).…”

“…In this section, we examine the empirical effects of structural reforms on the within and between components of labour productivity. The study of the links between reforms and productivity components allows us to determine whether reforms affect productivity growth by inducing an efficient reallocation of resources between sectors, within sectors, or both (Furceri et al 2021;Konté et al 2021). To our knowledge, these channels have not received much attention in the literature on the effects of reforms on productivity.…”

“…A common limitation of this work is the failure to identify the channels through which reforms stimulate productivity growth. Recently, the work of Konté et al (2021) has addressed this issue by analysing the impact of structural reforms on labour productivity growth while documenting the main channels of reform. Over a period from 1973-2005 and considering 36 developing countries, the authors find that structural reforms stimulate labour productivity growth.…”