Can Reform Waves Turn the Tide? Some Case Studies Using the Synthetic Control Method
IMF Working Papers, August 9, 2016
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Bibliographic details
- Authors: Bibek Adhikari, Romain A Duval, Bingjie Hu, Prakash Loungani
- Published: August 9, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475524277.001
Summary and main finding
- The paper implements six case studies of well-known waves of labor and product market reforms using the Synthetic Control Method (SCM).
- Cases studied: New Zealand, Australia, Denmark, Ireland, Netherlands (1990s), and Germany (labor market reforms in the early 2000s).
- In four of the six cases, GDP per capita was higher than in the control group as a result of the reforms.
- No difference between the treated country and its synthetic counterpart was found in the cases of Denmark and New Zealand.
- The lack of detectable effect in New Zealand may have partly reflected the implementation of reforms under particularly weak macroeconomic conditions.
- Overall conclusion: results are suggestive of a positive but heterogenous effect of reform waves on GDP per capita, taking into account the limitations of the SCM in this context.
Methodology
- Analytical approach: Synthetic Control Method (SCM).
- Application: Six country case studies comparing treated countries that undertook reform waves to synthetic control groups constructed by SCM.
Case study outcomes (by country)
- New Zealand: No detectable difference with synthetic counterpart; possible influence of weak macroeconomic conditions during reform implementation.
- Australia: GDP per capita higher than control group (implied among the four positive cases).
- Denmark: No detectable difference with synthetic counterpart.
- Ireland: GDP per capita higher than control group (implied among the four positive cases).
- Netherlands: GDP per capita higher than control group (implied among the four positive cases).
- Germany (early 2000s labor market reforms): GDP per capita higher than control group (implied among the four positive cases).
Policy-relevant interpretation
- Reform waves of labor and product market measures can be associated with higher GDP per capita, but effects are heterogeneous across countries.
- Contextual factors (for example, macroeconomic conditions at the time of reform implementation) can influence the measured impact.
- Limitations of SCM in this context should be considered when interpreting results.
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- Can Reform Waves Turn the Tide? Some Case Studies Using the Synthetic Control Method