IMF Working Papers

Structural Reforms and External Rebalancing

Author/Editor:

Alexander Culiuc ; Annette J Kyobe

Publication Date:

August 4, 2017

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

Empirical research on structural reforms has focused primarily on their impact on growth and productivity. Yet an often-invoked rationale for structural reforms is their impact on external adjustment. This paper finds little evidence that structural reforms improve the current account in the short run, but they can increase the responsiveness and resilience of the economy to external shocks. In particular, elasticities of exports with respect to the real effective exchange rate increase with some structural indicators, suggesting that structural reforms facilitate the reallocation of resources to the tradable sector in response to a negative external shock. The paper concludes that structural reforms, while not having an immediate positive impact on the current account balance, can be an important complement to traditional macroeconomic adjustment.

Series:

Working Paper No. 2017/182

Subject:

Balance of payments Current account Current account balance Exports Foreign exchange International trade Macrostructural analysis Real effective exchange rates Structural reforms