The Needle in the Haystack: What Drives Labor and Product Market Reforms in Advanced Countries?

By Romain A Duval, Davide Furceri, Jakob Miethe

May 9, 2018

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Romain A Duval, Davide Furceri, and Jakob Miethe. The Needle in the Haystack: What Drives Labor and Product Market Reforms in Advanced Countries?, (USA: International Monetary Fund, 2018) accessed September 18, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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. Outside pressure increases the likelihood of reform in certain areas: 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.

Subject: Commodity markets, Employment protection, Expenditure, Financial markets, Labor, Labor market reforms, Macrostructural analysis, Public investment and public-private partnerships (PPP), Structural reforms

Keywords: Bayesian averaging of maximum likelihood estimates, Business cycle, Centralization gov., Commodity markets, Deregulation, Eastern Europe, Employment protection, EU country, Government coalition, Government party majority, Government vote share, Labor market, Labor market reforms, Left-of-center government, Party majority, Political economy, Political orientation, Political system, Product market, Product market deregulation, Product market flexibility, Product market reform, Public investment and public-private partnerships (PPP), Southern Europe, Structural reforms, Unemployment benefit, Unemployment benefits, WP

Publication Details

Pages:

59
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/101
Stock No:

WPIEA2018101
ISBN:

9781484353639
ISSN:

1018-5941

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