## Box 1. The Case of Korea

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### Overview
- Korea transitioned to advanced economy status with per capita real GDP (in PPP 2005 US$) increasing from around $2,000 in 1960 to $28,000 by 2008.
- Korea’s growth trajectory included recessions and crises that were often turned into opportunities to implement reforms that produced subsequent productivity and growth payoffs.

### First-generation reforms (late 1970s–early 1980s)
- Context and triggers
  - Large-scale government-subsidized industry programs in the second half of the 1970s increased the current account deficit.
  - The oil shocks of the 1970s, an agricultural disaster, political turmoil, and previous policy mistakes culminated in the crisis of 1979–80, triggering the “first generation” economic reforms in the early 1980s.
- Major reform actions
  - Withdrawal of the state from ownership and intervention in market entry, market exit, and pricing.
  - Delegation of investment planning to the private sector.
  - Deregulation of entry for small and medium-sized firms from the early 1980s.
  - Replacement of industry-specific taxes by flat-rate value added taxes in the late 1970s.
  - Easing of controls on capital flows first in 1979 (inward), then in 1982 (inward), and then again in 1985 (inward and outward).
- Productivity and growth outcomes
  - First generation reforms were associated with acceleration in aggregate TFP growth (average 3.6 percent per annum in the following decade).
  - Rapid increases in real per capita income, investment, and exports occurred during 1980–90.

### Second-generation reforms (post-1997 Asian financial crisis)
- Pre-crisis weaknesses
  - Persistent distortions in financial markets: directed lending and highly regulated interest rates.
  - Dominance of chaebol draining capital and shielded from market discipline.
- Crisis and reform reinvigoration
  - The 1997 Asian financial crisis led to restructuring of the business sector, banking, the public sector, and the labor market.
  - Measures included creation of agencies for financial regulation and oversight, increased reserve requirements, improved management transparency and accountability in business, and increased labor market flexibility.
  - Economic reforms combined with aggressive counter-cyclical monetary and fiscal policies, significant growth in the export sector, and high FDI inflows enabled a swift recovery.
- Productivity and trade outcomes
  - TFP growth was boosted again after reforms.
  - The economy grew at an annual rate of 5.3 percent during 2000–08.
  - Exports increased their share of GDP from 32 percent in 1997 to 53 percent in 2008.

### Empirical results and implications from cross-country analysis (contextualized by Korea’s experience)
- General finding
  - Productivity payoffs of reforms differ as countries close their gap to the global technological frontier; reform priorities evolve with development stage.
- Representative numeric finding preserved from the source
  - A full liberalization of credit controls in the banking sector (reform index goes from 0 to 1) is associated with a higher short-term TFP growth of about 2.9 percentage points on average for countries in the second quartile (typically lower-middle income countries); this effect is insignificant for other income groups.
- Reform-specific patterns by development stage
  - Banking sector reforms
    - Aggregate productivity payoffs accrue for all countries but are largest for lower-middle-income countries (second quartile).
    - Banking sector reforms increase manufacturing productivity in lower-middle-income countries and positively affect services and agricultural productivity mainly in upper-middle-income countries (third quartile).
  - Capital market development
    - Coefficient is statistically significant and highest for upper-middle-income countries (third quartile); largest gains accrue in manufacturing and agricultural sectors for countries closer to the frontier (third and fourth quartiles).
  - Trade reforms and FDI liberalization
    - Reducing trade barriers raises average labor productivity growth in low-income countries.
    - Liberalizing FDI boosts productivity in manufacturing and services in middle-income countries and fosters economy-wide productivity gains.
  - Institutional reform
    - Improving legal systems and property rights increases productivity, with the largest coefficients for low-income countries; significant increases in agriculture and services for low-income countries (first quartile).
  - Product market and regulatory reforms
    - Business regulation reforms (reducing administrative burdens) are positively associated with higher aggregate productivity growth for middle-income countries, and with manufacturing productivity growth in low-income countries.
    - Agricultural sector reforms are associated with higher productivity growth in low- and lower-middle-income countries and yield spillovers to manufacturing.
  - Labor market regulations
    - Removing excessive labor market rigidities boosts aggregate and sectoral productivity in middle-income countries (second and third quartiles); payoffs are most significant for manufacturing and services in lower-middle-income countries (second quartile).

### Dynamic impacts of reforms (short- and medium-term)
- Short-term (year immediately after large reform)
  - No evidence of short-term costs to productivity growth; some reforms yield positive short-term payoffs.
  - Capital market development, institutional, and agricultural sector reforms are associated with higher TFP and aggregate labor productivity growth in the short term.
  - Trade liberalization and labor market reform show productivity payoffs only over the longer term, consistent with reallocation costs.
- Medium-term (up to five years)
  - Some reforms generate long-lasting increases in productivity growth.
  - Capital market development: about 2.8 percentage point increase in aggregate productivity by the fifth year (or over 0.5 percentage point per year on average); gains driven mainly by manufacturing.
  - Improvements in legal system and property rights are associated with continuous increases in productivity over 5 years.
  - Productivity gains from banking sector reforms materialize around four years after implementation.
  - Aggregate productivity developments are driven by higher agricultural and manufacturing productivity growth.
- Reform shock identification for dynamic analysis
  - Two shock measures: “sd-shock” (year-on-year change larger than two standard deviations) and “up-break” (structural break algorithm requiring large and persistent change).
  - There are on average 106 “sd-shocks” across all reform indicators and 166 average “up-breaks” identified across the full sample.
  - The two sets of reform shocks overlap despite different identification criteria.
- Robustness of dynamic results
  - Using “up-break” measure produces qualitatively similar banking system and trade reform impacts but larger coefficient magnitudes for some reforms; results for other reforms (e.g., legal system/property rights) are less consistent and sometimes weaker.

### Robustness, estimation notes, and caveats
- Sample and periods
  - Sample size: 108 countries.
  - Period covered in Korea box context and cross-country analysis: 1970–2011 (full sample noted elsewhere as 1970–2010 in some regressions).
- Empirical approach and estimators
  - Panel fixed-effect estimator for each quartile (Q1–Q4), with one reform/institutional variable entered separately.
  - Controls include a one-year lag of the productivity levels gap with the United States, time effects tμ, and time-invariant country effects iν.
  - Robust standard errors clustered at the country level.
  - Additional robustness: Arellano-Bond Generalized Method of Moments (GMM) and System-GMM checks; 3-year average dependent variable specifications; up-break identification (Berg et al.) used for reform episodes.
- Important caveats
  - Endogeneity of reforms not explicitly controlled for; results are correlations rather than causal estimates.
  - Reform indices are highly correlated; regressions enter reforms one at a time, so estimated coefficients should be viewed as upper-bound impacts when interpreted in isolation.
  - Paper focuses on individual effects of reforms and does not fully account for complementarities or sequence of reforms.

### Policy implications and recommendations (tailored by development stage)
- For lower-income countries (far from frontier)
  - Prioritize removal of constraints to the movement of goods and factors: trade and foreign investment liberalization to facilitate technology adoption and transfer.
  - Strengthen economic institutions protecting property rights and facilitating private contracting.
  - Remove inefficient state control and subsidies in agriculture to boost productivity and facilitate structural transformation, with spillovers to manufacturing.
- For emerging markets and more advanced developing economies (closer to frontier)
  - Advance second-generation reforms: deepen financial markets, move to market-driven allocation of finance, adopt more competitive product and labor market regulations, and reduce barriers to FDI—especially to support a growing services sector and foster innovation.
- Timing considerations
  - Some reforms produce immediate productivity gains (e.g., certain capital market and institutional reforms), while others (notably banking sector reforms and some market-deepening measures) require multi-year adjustments before payoffs materialize.
- Overall message
  - The scope for structural reforms remains considerable in most EMDEs; tailoring reform mixes to the stage of economic development can focus attention where productivity payoffs are likely to be largest.

*Source: IMF staff summary of Box 1. The Case of Korea, from the provided document.*

### Box 1. The Case of Korea ...............................................................................................

### Box 1. The Case of Korea

### Overview
- Box title: "The Case of Korea"
- Appears in document sections around pages 12–20, embedded within broader analysis of structural reforms and productivity.

### Empirical approach
- Section title present: "A. Empirical approach"
- Positioned under "IV. THE DYNAMIC IMPACT OF REFORMS"

### Results
- Section headings referencing results:
  - "B. Results" (appears twice: once near page 13 and again under IV with results on page 18)
  - "V. CONCLUDING REMARKS" (page 20)

### Dynamic impact of reforms
- Main section: "IV. THE DYNAMIC IMPACT OF REFORMS"
- Subsection: "A. Empirical approach"
- Subsection: "B. Results"
- Related figure: "5. Estimated Dynamic Reform Impact on Aggregate Labor" (appears in figure list)

### Korea-specific figures and indicators (as listed)
- "2. Korea Productivity Growth in First Generation Reform"
- "3. Korea: Total Factor Productivity"
- "4. Estimated Reform Coefficients by Distance to Frontier"
- "5. Estimated Dynamic Reform Impact on Aggregate Labor"

### Appendices and supporting tables (as listed)
- Appendix I: "Definitions of Structural Reforms"
- Appendix Tables:
  - "1. Reforms and Distance to Frontier: Aggregate Productivity Growth"
  - "2. Reforms and Distance to Frontier: Sectoral Productivity Growth"
  - "3. Short and Medium-term Impacts: Aggregate Productivity Growth"
  - "A1. Reforms and Distance to Frontier: 3 Year Average Aggregate Productivity Growth" (listed twice)

*Source: _wp1615 - Box 1. The Case of Korea — https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2016/_wp1615.pdf*

### References .............................................................................................................

### _wp1615 - References .............................................................................................................

### I. INTRODUCTION — scope and questions
- Focus: how productivity payoffs of structural reforms vary with a country's distance to the global technological frontier and evolve over time.
- Coverage: sample of more than a hundred countries, primarily EMDEs (Emerging Market and Developing Economies).
- Key productivity measures examined: total factor productivity (TFP) and average labor productivity (aggregate and sectoral: agriculture, manufacturing, services).
- Time horizon emphasized: short- vs. medium-term impacts of reforms; recognition that supply-side gains largely accrue over the medium- to long-term and some reforms can affect demand in the short-run.
- Conceptual framing: neo‑Schumpeterian growth theory — adoption (imitation) dominates for countries far from frontier, innovation dominates nearer the frontier (Aghion and Howitt, 2006, 2009; Acemoglu and others, 2006).

### II. Selected literature review — types of reforms and mechanisms
- Financial sector reforms
  - Efficient financial systems increase investment and spur innovation (Levine, 2005).
  - Evidence: reforms reducing financial repression raised manufacturing productivity by 17 percent in firm‑level evidence from 10 Eastern European countries (Larrain and Stumpner, 2013).
  - Capital market development (equity, bonds, securities) lowers cost of capital and facilitates financing of new capital and innovation; instruments for financing innovation may matter more near the frontier (Aghion and others, 2005).
- Trade and FDI liberalization
  - Openness lowers barriers to efficient allocation and technology transfer; more open economies grew faster (Wacziarg and Welch, 2008).
  - High tariffs and non‑tariff barriers constrain agricultural productivity (Tombe, 2012).
  - Services barriers are substantially higher in developing countries on average (Borchert and others, 2010).
  - Dismantling entry barriers and easing FDI restrictions in services associated with higher productivity in downstream manufacturing (e.g., Arnold and others, 2012; Fernandes and Paunov, 2012).
- Labor market reforms
  - Rigid hiring/firing, employment protection, and weak income protection encourage informality and impede labor movement to productive sectors.
  - Evidence: a 1 percentage point decrease in the informality rate is associated with about a 0.5 percentage point decline in the gap between TFP in LAC versus the United States (IDB, 2013).
  - Stringent employment protection correlated with weaker labor productivity and TFP growth (Bassanini and Duval, 2009).
- Product market reforms
  - Entry restrictions reduce competition and technology adoption; more detrimental closer to the frontier (Aghion and others, 2009).
  - Lighter regulatory burdens associated with higher productivity growth in OECD evidence (Dall’Olio and others, 2013).
  - Agricultural reforms (reducing administered prices/export monopolies, land/tenancy reforms, infrastructure and yields) can generate economy‑wide productivity gains and facilitate structural transformation (Adamopoulos and Restuccia, 2011; Dabla‑Norris et al., 2013).
- Institutions
  - Secure property rights and enforceable contracts promote private investment, entrepreneurship, financial development, and better resource allocation (Acemoglu, Johnson, and Robinson, 2005).
- Human capital and innovation
  - Primary and secondary education matter more for imitation; tertiary education matters more for innovation (Aghion and Howitt, 2009; Vandenbussche and others, 2006).
  - R&D increases growth via innovation near the frontier and raises absorptive capacity elsewhere (Acemoglu and others, 2006).

### III. REFORMS AND DISTANCE TO FRONTIER — empirical approach
- Country grouping: countries sorted into income quartiles by real per capita GDP gap with the United States (quartiles denoted Q1–Q4; Q4 closest to frontier). Note: using productivity gap instead of income gap makes no material differences to quartile assignment.
- Sample and period: 108 countries for the period 1970–2011 (depending on reform indicator availability).
- Estimation:
  - Panel fixed‑effect estimator for each quartile (Q1–Q4), with one reform/institutional variable entered separately (one‑by‑one).
  - Controls include a one‑year lag of the productivity levels gap with the United States to capture convergence effects, time effects tμ, and time‑invariant country effects iν.
  - Robust standard errors clustered at the country level.
  - Additional robustness: Arellano‑Bond Generalized Method of Moments (GMM) used as a check.
- Caveat: endogeneity of reforms not explicitly controlled for; results highlight correlations rather than causal identification. Mitigations: sectoral productivity dynamics, estimation of large structural reform shocks, and GMM robustness checks.

### IV. Data sources and reform measures
- Productivity data:
  - TFP and aggregate labor productivity from Penn World Tables (PWT, version 8.0).
  - Sectoral average labor productivity (agriculture, manufacturing, services) computed as real value added per worker using UN National Accounts value‑added and sectoral employment from ILO, World Bank WDI, and GGDC.
- Distance to frontier: per capita GDP from PWT (PPP constant U.S. dollars).
- Structural reform indices:
  - IMF (2008) annual indicators of enacted reforms in international trade, FDI, banking system, capital market, and agriculture; normalized between 0 and 1 (higher = greater liberalization).
  - Institutional variables: Fraser index for labor market institutions and business regulations (higher values denote less restrictive regulations); alternative institutional measures considered in robustness checks.
- Data limitations: paucity of quality education and R&D measures — these were not explicitly included in regressions.

### V. Key empirical findings (high‑level)
- Heterogeneity by distance to frontier:
  - Lower income countries (farther from frontier) benefit most from reforms that alleviate constraints on trade and foreign investment, and from removal of agricultural price controls and subsidies.
  - Emerging Market Economies (EMEs) experience relatively larger productivity gains from enhancing banking system efficiency, capital market development, and improving the business environment.
- Dynamics of payoffs:
  - Not all reforms yield immediate productivity gains; for example, productivity gains from banking system reforms can take a few years to materialize.
  - Payoffs from most reforms tend to increase over time, consistent with prior evidence for advanced economies (Dabla‑Norris and others, 2015).
- Robustness and interpretation:
  - Results qualitatively hold across different dependent variables and empirical specifications.
  - Given endogeneity concerns, results are correlations; estimates of each reform entered one‑by‑one should be viewed as an upper‑bound impact due to correlation among reform indices.

### VI. Representative quantitative statements preserved from source
- Sample size: 108 countries.
- Period: 1970–2011.
- Reform index normalization: range between 0 and 1.
- Firm‑level evidence cited: 17 percent manufacturing productivity increase from reduced financial repression (Larrain and Stumpner, 2013).
- Informality example: a 1 percentage point decrease in the informality rate is associated with about a 0.5 percentage point decline in the TFP gap between LAC and the United States (IDB, 2013).

*Italicized source attribution: IMF working paper content (excerpt).

### Box 1. The Case of Korea

### Box 1. The Case of Korea

### Overview
- Korea transitioned to advanced economy status with per capita real GDP (in PPP 2005 US$) increasing from around $2,000 in 1960 to $28,000 by 2008.
- Korea’s growth trajectory included recessions and crises that were often turned into opportunities to implement reforms that produced subsequent productivity and growth payoffs.

### First-generation reforms (late 1970s–early 1980s)
- Context and triggers
  - Large-scale government-subsidized industry programs in the second half of the 1970s increased the current account deficit.
  - The oil shocks of the 1970s, an agricultural disaster, political turmoil, and previous policy mistakes culminated in the crisis of 1979–80, triggering the “first generation” economic reforms in the early 1980s.
- Major reform actions
  - Withdrawal of the state from ownership and intervention in market entry, market exit, and pricing.
  - Delegation of investment planning to the private sector.
  - Deregulation of entry for small and medium-sized firms from the early 1980s.
  - Replacement of industry-specific taxes by flat-rate value added taxes in the late 1970s.
  - Easing of controls on capital flows first in 1979 (inward), then in 1982 (inward), and then again in 1985 (inward and outward).
- Productivity and growth outcomes
  - First generation reforms were associated with acceleration in aggregate TFP growth (average 3.6 percent per annum in the following decade).
  - Rapid increases in real per capita income, investment, and exports occurred during 1980–90.

### Second-generation reforms (post-1997 Asian financial crisis)
- Pre-crisis weaknesses
  - Persistent distortions in financial markets: directed lending and highly regulated interest rates.
  - Dominance of chaebol draining capital and shielded from market discipline.
- Crisis and reform reinvigoration
  - The 1997 Asian financial crisis led to restructuring of the business sector, banking, the public sector, and the labor market.
  - Measures included creation of agencies for financial regulation and oversight, increased reserve requirements, improved management transparency and accountability in business, and increased labor market flexibility.
  - Economic reforms combined with aggressive counter-cyclical monetary and fiscal policies, significant growth in the export sector, and high FDI inflows enabled a swift recovery.
- Productivity and trade outcomes
  - TFP growth was boosted again after reforms.
  - The economy grew at an annual rate of 5.3 percent during 2000–08.
  - Exports increased their share of GDP from 32 percent in 1997 to 53 percent in 2008.

### Empirical results and implications from cross-country analysis (contextualized by Korea’s experience)
- General finding
  - Productivity payoffs of reforms differ as countries close their gap to the global technological frontier; reform priorities evolve with development stage.
- Representative numeric findings
  - A full liberalization of credit controls in the banking sector (reform index goes from 0 to 1) is associated with a higher short-term TFP growth of about 2.9 percentage points on average for countries in the second quartile (typically lower-middle income countries); this effect is insignificant for other income groups.
- Reform-specific results by development stage
  - Banking sector reforms
    - Aggregate productivity payoffs accrue for all countries but are largest for lower-middle-income countries (second quartile).
    - Banking sector reforms increase manufacturing productivity in lower-middle-income countries and positively affect services and agricultural productivity mainly in upper-middle-income countries (third quartile).
  - Capital market development
    - Coefficient is statistically significant and highest for upper-middle-income countries (third quartile); largest gains accrue in manufacturing and agricultural sectors for countries closer to the frontier (third and fourth quartiles).
  - Trade reforms and FDI liberalization
    - Reducing trade barriers raises average labor productivity growth in low-income countries.
    - Liberalizing FDI boosts productivity in manufacturing and services in middle-income countries and fosters economy-wide productivity gains.
  - Institutional reform
    - Improving legal systems and property rights increases productivity, with the largest coefficients for low-income countries; significant increases in agriculture and services for low-income countries (first quartile).
  - Product market and regulatory reforms
    - Business regulation reforms (reducing administrative burdens) are positively associated with higher aggregate productivity growth for middle-income countries, and with manufacturing productivity growth in low-income countries.
    - Agricultural sector reforms are associated with higher productivity growth in low- and lower-middle-income countries and yield spillovers to manufacturing.
  - Labor market regulations
    - Removing excessive labor market rigidities boosts aggregate and sectoral productivity in middle-income countries (second and third quartiles); payoffs are most significant for manufacturing and services in lower-middle-income countries (second quartile).

### Robustness and estimation notes
- Robustness checks
  - Re-estimation using three-year averages yields most results robust, though institutional reforms lose significance across income groups due to fewer observations.
  - System-GMM (instrumenting reform variables using 2 lags) for full sample: most results hold (capital market development, trade reforms, some domestic financial sector reforms such as loosening of credit controls); banking system reforms, labor and business regulations lose significance in this specification.
- Reform shock identification for dynamic analysis
  - Two shock measures: “sd-shock” (year-on-year change larger than two standard deviations) and “up-break” (structural break algorithm requiring large and persistent change).
  - There are on average 106 “sd-shocks” across all reform indicators and 166 average “up-breaks” identified across the full sample.
  - The two sets of reform shocks overlap despite different identification criteria.

### Dynamic impacts of reforms (short- and medium-term)
- Short-term (year immediately after large reform)
  - No evidence of short-term costs to productivity growth; some reforms yield positive short-term payoffs.
  - Capital market development, institutional, and agricultural sector reforms are associated with higher TFP and aggregate labor productivity growth in the short term.
  - Trade liberalization and labor market reform show productivity payoffs only over the longer term, consistent with reallocation costs.
- Medium-term (up to five years)
  - Some reforms generate long-lasting increases in productivity growth.
  - Capital market development: about 2.8 percentage point increase in aggregate productivity by the fifth year (or over 0.5 percentage point per year on average); gains driven mainly by manufacturing.
  - Improvements in legal system and property rights are associated with continuous increases in productivity over 5 years.
  - Productivity gains from banking sector reforms materialize around four years after implementation.
  - Aggregate productivity developments are driven by higher agricultural and manufacturing productivity growth.
- Robustness of dynamic results
  - Using “up-break” measure produces qualitatively similar banking system and trade reform impacts but larger coefficient magnitudes for some reforms; results for other reforms (e.g., legal system/property rights) are less consistent and sometimes weaker.

### Concluding implications and policy recommendations
- Reform priorities should be calibrated to a country’s position along the development path; productivity dividends depend on development stage.
- For lower-income countries:
  - Prioritize removal of constraints to the movement of goods and factors (trade and foreign investment liberalization) to facilitate technology adoption and transfer.
  - Strengthen economic institutions protecting property rights and facilitating private contracting.
  - Remove inefficient state control and subsidies in agriculture to boost productivity and facilitate structural transformation, with spillovers to manufacturing.
- For emerging markets and more advanced developing economies:
  - Advance second-generation reforms: deepen financial markets, move to market-driven allocation of finance, adopt more competitive product and labor market regulations, and reduce barriers to FDI—especially to support a growing services sector and foster innovation.
- Timing considerations
  - Some reforms produce immediate productivity gains, while others (notably banking sector reforms and some market-deepening measures) require multi-year adjustments before payoffs materialize.
- Overall message
  - The scope for structural reforms remains considerable in most EMDEs; tailoring reform mixes to the stage of economic development can focus attention where productivity payoffs are likely to be largest.

*Source: IMF staff summary of Box 1. The Case of Korea, from the provided document.*

### conclusions. First, it is difficult to fully account for complementarities in the determinants of

### _wp1615 - conclusions

### Main caveats and limitations
- Difficult to fully account for complementarities in the determinants of productivity growth; the paper focuses on the individual effect of reforms rather than interactions among reforms.  
- Regression results do not capture reform complementarities because high correlation in reform indices requires them to enter regressions one at a time.  
- Issues of reform sequencing that could be critical for reform benefits to materialize are not addressed.  
- Policy reforms may have nonlinear effects contingent on the quality of political and economic institutions (Acemoglu and others, 2005); the empirical analysis instead considers the impact of reforms by countries’ distance from the frontier.  
- To the extent that income levels are correlated with institutional quality, the analysis implicitly accounts for complementarity between reforms and institutional quality.

### Definition of structural reforms (data sources and construction)
- Financial sector: dataset from Abiad and others (2010) with two measures — domestic financial sector and capital account liberalization. Domestic financial sector liberalization includes securities markets and banking sector reforms. Banking subindex captures: i) reductions or removal of interest rate controls, ii) credit controls, iii) competition restrictions (limits on branches and entry barriers), iv) degree of public ownership of banks, and v) quality of banking supervision and regulation (including adoption of Basel capital standards and bank inspection framework).  
- Labor market: two sub-indices from World Economic Forum Executive Opinion Survey and Global Competitiveness Report — Hiring and firing regulations (scale: impeded by regulations =1 to flexibly determined by employers =7) and Collective bargaining (wages set by centralized bargaining =1 to up to each individual company =7).  
- Product market: measures degree of liberalization in telecommunication and electricity markets (extent of competition, presence of independent regulator, privatization).  
- Agricultural sector: indicator captures intervention in the market for the main agricultural export commodity (measures presence of marketing boards, administered prices, public ownership, concession requirements). Data from Prati et al. 2012; IMF Index of Agricultural regulation.  
- Trade liberalization: tariff-based measure (scale 0 to 1, where 0 means tariff rates are 60 percent or higher and 1 means tariff rates are zero). Data from Prati and others. 2013.  
- Capital account liberalization: two measures from Chin-Ito (2006): one measures compliance with IMF Article VIII obligations; the second captures broad set of restrictions (external borrowing controls, approval requirements for FDI, etc.).  
- Institutional reforms: index of legal system and property rights compiled by EFW-Fraser Institute from PRS Group’s International Country Risk Guide, World Economic Forum’s Global Competitiveness Report, World Bank’s Doing Business project and Worldwide Governance Indicators. Data from EFW-Fraser Institute Database, 1975–2012.

### Empirical setup and sample characteristics
- Panel regressions typically include: relative income gap with US (convergence effects), a reform index or institutional variable (lagged one period) entering one at a time, and country- and year-fixed effects.  
- Q1–Q4 denote income group quartiles (based on GDP per capita relative to the United States).  
- Dependent variables used include: annual growth rate of TFP; aggregate labor productivity growth; sectoral productivity growth in manufacturing, services, and agriculture.  
- The full sample consists of over 100 countries for the period 1970–2010; sectoral regressions use more than 90 countries for 1970–2010.  
- Reform indices are normalized between 0 and 1.  
- Reform shocks are defined as reforms larger than 2 stds (used for short- and medium-term impact analysis).  
- Significance notation: *,**, and *** indicate significance at the 10 percent, 5 percent, and 1 percent levels, respectively.

### Key empirical patterns and findings (high-level)
- Reforms are analyzed separately due to index correlations; results vary by reform type, income quartile (Q1–Q4), and sector (services, manufacturing, agriculture).  
- Many financial sector reform indicators (banking system reforms, supervision, capital market development) are associated with positive and statistically significant coefficients in TFP and aggregate labor productivity regressions in multiple specifications.  
- Trade and FDI liberalization measures show statistically significant positive associations in several specifications for aggregate and sectoral productivity.  
- Institutional reforms (legal system and property rights) show positive and sometimes statistically significant associations with productivity growth in several specifications.  
- Product market and regulatory reforms (notably agricultural reforms) show positive and often statistically significant associations with productivity growth, including strong effects in sectoral regressions.  
- Short- and medium-term analyses using reform-shock dummies (reforms > 2 stds) show that many reforms (banking system reforms, supervision, capital market development, privatization, legal system and property rights, labor market regulations) are associated with positive TFP and aggregate labor productivity growth in years 1–5 following shocks in various specifications.

### Short- and medium-term dynamics (method and notable patterns)
- Panel regressions for short- and medium-term impacts include: relative income gap with US, a reform shock dummy (reforms larger than 2 stds) entering one at a time, crisis dummies and country fixed effects.  
- Yr 1–Yr 5 coefficients are reported for TFP and aggregate labor productivity growth, and for sectoral productivity growth (services, manufacturing, agriculture).  
- Robust positive medium-term effects are evident for several financial-sector measures (e.g., supervision, capital market development), privatization, legal system and property rights, and labor market regulations in various Yr 2–Yr 5 windows.  
- “Up-breaks” (identified using Berg et al. algorithm) produce pronounced positive short- and medium-term impacts for banking system reforms and trade reform in some specifications.

### Estimation variations and robustness checks
- Alternative aggregations and estimators used include: 3-year average dependent variables, GMM specifications, and up-break (Berg et al.) identification of reform episodes.  
- GMM results (aggregate productivity) report positive coefficients for supervision, capital market development, trade (tariff and current account restrictions), FDI liberalization, legal system and property rights, and agriculture, with significance indicated in the tables.  
- 3-year average regressions and up-break analyses generally corroborate the positive medium-term associations between many reforms and productivity growth.

*Source: _wp1615 - conclusions (IMF working paper content provided) *

### References

### References

### Institutions, Growth, and Structural Transformation
- Acemoglu, D., S. Johnson, and J Robinson. 2005. “Institutions as a Fundamental Cause of Long-Run Growth.” Handbook of Economic Growth, Chapter 6.
- ______, P. Aghion, and F. Zilibotti. 2006. “Distance to Frontier, Selection, and Economic Growth.” Journal of the European Economic Association, Vol. 4(1), 37–74.
- Aghion, P., P. Howitt, and D. Mayer-Foulkes. 2005. “The Effect of Financial Development on Convergence: Theory and Evidence.” The Quarterly Journal of Economics, 120(1), 173–222.
- ______, and P. Howitt. 2006. “Joseph Schumpeter Lecture. Appropriate Growth Policy: A Unifying Framework.” Journal of European Economic Association, Vol. 4(2–3), 269–314.
- ———, 2009, The Economics of Growth (Cambridge, Massachusetts: MIT Press).
- Vandenbussche, J., P. Aghion, and C. Meghir. 2006. “Growth, Distance to Frontier and Composition of Human Capital.” Journal of Economic Growth, 11(2), 97–127.
- Restuccia, D., and R. Rogerson. 2013. “Misallocation and Productivity, Review of Economic Dynamics.” Vol. 16, 1–10.
- Syverson, C. 2011. “What Determines Productivity?” Journal of Economic Literature, 49 (2), 326–65.
- Tombe, T. 2012. “The Missing Good Problem: How Low Agricultural Imports Contribute to International Income and Productivity Differences.” Manuscript, University of Calgary.

### Financial Development, Regulation, and Reform
- Abiad, A. G., Detragiache, E., & Tressel, T. 2010. A new database of financial reforms. IMF Staff Papers, 57(2), 281–302.
- Chinn, Menzie D. and Hiro Ito (2006). "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Journal of Development Economics, Volume 81, Issue 1, Pages 163–192 (October).
- Larrain, M., and S. Stumpner. 2013. “Financial Reforms and Aggregate Productivity: The Microeconomic Channel.” Working Paper.
- Levine, R. 2005. “Finance and Growth: Theory and Evidence.” Handbook of Economic Growth, 1, 865–934.
- Rajan, R. G., and L. Zingales. 2001. “Financial systems, Industrial Structure, and Growth,” Oxford Review of Economic Policy, 17(4), 467–82.

### Structural Reforms, Policy Evaluation, and Short-Term Effects
- Bordon, A., C. Ebeke, and K. Shirono. 2015. forthcoming, “When do Structural Reforms Work? On the Role of the Business Cycle and Macroeconomic Policies.” IMF Working Paper. International Monetary Fund, Washington.
- Bouis, R., and R. Duval. 2011. “Raining Potential Growth After the Crisis: A Quantitative Assessment of the Potential Gains from Various Structural Reforms in the OECD Area and Beyond.” OECD Economics Department Working Papers, No. 835, OECD Publishing.
- ______, O. Causa, L. Demmou, R. Duval, and A. Zdzienicka. 2012, “The Short-Term Effects of Structural Reforms: An Empirical Analysis.” OECD Economics Department Working Papers, No. 949, OECD Publishing.
- Cacciatore, M., R. Duval, and G. Fiori. 2012. “Short-Term Gain or Pain? A DSGE Model Based Analysis of the Short-Term Effects of Structural Reforms in Labor and Product Markets.” OECD Economics Department Working Papers, No. 948, OECD Publishing.
- Christiansen, L., M. Schindler, and T. Tressel. 2013. “Growth and Structural Reforms: A New Assessment.” Journal of International Economics, 89, 347–56.
- Prati, A., M. G. Onorato, and C. Papageorgiou. 2013. “Which Reforms Work and under What Institutional Environment? Evidence from a New Data Set on Structural Reforms.” Review of Economics and Statistics, 95(3), 946–68.
- Tressel, T. 2008. “Unbundling the Effects of Reforms,” preliminary draft, 28–29. http://www.imf.org/external/np/seminars/eng/2008/strureform/pdf/unbund.pdf.

### Labor Markets, Unemployment, and Reform Complementarities
- Bassanini, A., and R. Duval. 2009. “Unemployment, Institutions, and Reform Complementarities: Re-assessing the Aggregate Evidence for OECD countries.” Oxford Review of Economic Policy, 25(1), 40–59.
- Cacciatore, M., R. Duval, and G. Fiori. 2012. “Short-Term Gain or Pain? A DSGE Model Based Analysis of the Short-Term Effects of Structural Reforms in Labor and Product Markets.” OECD Economics Department Working Papers, No. 948, OECD Publishing.
- International Monetary Fund (IMF). 2012. “Fiscal Policy and Employment in Advanced and Emerging Economies.” IMF Policy Paper, Washington.
- International Monetary Fund (IMF). 2013. “Guidance Note on Jobs and Growth Issues in Surveillance and Program Work: Supplement on Country Case Studies.” Washington.

### Product and Services Market Reform, Trade, and FDI
- Nicoletti, G., and S. Scarpetta. 2003. “Regulation, Productivity and Growth: OECD Evidence.” Economic Policy, 18(36), 9–72.
- Conway, P., D. de Rosa, G. Nicoletti, and F. Steiner. 2006. “Product Market Regulation and Convergence.” OECD Economic Studies No. 43, 2006/2, OECD, Paris.
- Borchert, I., B. Gootiiz, and A. Mattoo. 2010. “Restrictions on Services Trade and FDI in Developing Countries.” World Bank, mimeo.
- Arnold, J., B. Javorcik, M. Lipscomb, and A. Mattoo. 2012. “Services Reform and Manufacturing Performance: Evidence from India.” WB Policy Research Working Paper 5948, World Bank, Washington.
- Duggan, V., S. Rahardja, and G. Varela. 2013. “Service Sector Reform and Manufacturing Productivity: Evidence from Indonesia.” WB Policy Research Working Paper 6349, World Bank, Washington.
- Fernandes, A.M., and C. Paunov. 2012. “Foreign Direct Investment in Services and Manufacturing Productivity: Evidence for Chile.” Journal of Development Economics, vol. 97(2), 305–21.
- Wacziarg, R., and K. H. Welch. 2008. “Trade Liberalization and Growth: New Evidence.” The World Bank Economic Review, 22(2),187–231, Washington.

### Agriculture, Firm Size, and Sectoral Productivity
- Adamopoulos, T., D. Restuccia. 2011. “The Size Distribution of Farms and International Productivity Differences.” Manuscript, University of Toronto.
- Cao, K. H., and J.A. Birchenall. 2013. “Agricultural Productivity, Structural Change, and Economic Growth in Post-Reform China.” Journal of Development Economics.
- Tombe, T. 2012. “The Missing Good Problem: How Low Agricultural Imports Contribute to International Income and Productivity Differences.” Manuscript, University of Calgary.

### Cross-country Empirical Evidence, Databases, and Policy Reports
- Abiad, A. G., Detragiache, E., & Tressel, T. 2010. A new database of financial reforms. IMF Staff Papers, 57(2), 281–302.
- Dabla-Norris, E., S. Guo, V. Haksar, M. Kim, K. Kochhar, K.Wiseman, and A. Zdzienicka. 2015. “The New Normal: A Sector-Level Perspective on Growth and Productivity Trends in Advanced Economies.” IMF Staff Discussion Note 15/03 International Monetary Fund, Washington.
- ______, G. Ho, K. Kochhar, A. Kyobe, and R. Tchaidze. 2013. “Anchoring Growth: The Importance of Productivity-Enhancing Reforms in Emerging Market and Developing Economies.” IMF Staff Discussion Note 13/08, International Monetary Fund, Washington.
- ______, A.Thomas, R. Garcia-Verdu, and Y. Chen. 2013. “Benchmarking Structural Transformation Across the World.” IMF Working Paper 13/176, International Monetary Fund, Washington.
- International Monetary Fund (IMF). 2008. “Structural Reforms and Economic Performance in Advanced and Developing Countries.” IMF Policy Paper, Washington.
- Organisation for Economic Co-operation and Development (OECD). 2013. “Economic Policy Reforms 2013: Going for Growth.” OECD Publishing. http://dx.doi.org/10.1787/growth-2013-en
- World Bank. 2012. World Development Report 2013: Jobs World Bank: Washington.
- Inter-American Development Bank (IDB), 2013. Rethinking Reforms, How Latin America and the Caribbean Can Escape Suppressed World Growth (Washington: Inter-American Development Bank).

### Microeconomic Channels, Productivity Measurement, and Firm Dynamics
- Bassassini, A., Scarpetta, S., & Visco, I. 2000. Knowledge, technology and economic growth: an OECD perspective.
- Henrekson, M., & Johansson, D. (2010). Firm growth, institutions and structural transformation.
- Larrain, M., and S. Stumpner. 2013. “Financial Reforms and Aggregate Productivity: The Microeconomic Channel.” Working Paper.
- Dall’Olio, A., M. Iootty, N. Kanehira, and F. Saliola. 2013. “Productivity Growth in Europe.” WB Policy Research Working Paper 6425, World Bank, Washington.
- Prati, A., M. G. Onorato, and C. Papageorgiou. 2013. “Which Reforms Work and under What Institutional Environment? Evidence from a New Data Set on Structural Reforms.” Review of Economics and Statistics, 95(3), 946–68.

*References list from _wp1615 - References*

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