Working Paper: NBER ID: w3138
Authors: Sebastian Edwards
Abstract: Both OECD and developing economies have embarked on structural reforms aimed at dismantling regulations and reducing the extent of distortions affecting different sectors of their economies. Regardless of the marked difference, both groups have to deal with the problems of the appropriate sequencing and speed of reforms. This paper first critically reviews the LDCs' related literature on sequencing and speed of structural reforms drawing out features which are of relevance for OECD economies. The paper then develops a formal framework based on a welfare criterion for evaluating efficiency effects of structural policies paying particular attention to the way in which distortions interact both intra and inter-temporally. The framework is then used to discuss some of the important issues such as the sequencing of micro and macro reforms ("competition of instruments"), broad front versus sequential reforms, and the role of policy credibility.
Keywords: Structural Reforms; Sequencing; Economic Performance
JEL Codes: N00; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| order of liberalization (P39) | macroeconomic stability (E60) |
| improper sequencing (C69) | adverse outcomes (I12) |
| capital inflows management (F32) | real exchange rate appreciation (F31) |
| credibility of reform programs (E69) | effectiveness of reforms (H11) |
| perceived reversibility of reforms (P27) | exacerbation of existing distortions (H31) |
| adjustment costs (J30) | pace of reforms (E69) |
| gradual reforms (P39) | mitigation of short-term negative impacts (F69) |
| gradual reforms (P39) | reduction of unemployment and political opposition (E69) |