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The paper analyzes the influence of credit-, labor-, and product market deregulation policies on economic growth in more than 70 economies over a period of 40 years. By combining a difference-in-difference strategy with an IV approach to the endogeneity of the reform timing, this work finds that deregulation contributed to the per capita GDP levels of the early and consistent reformers relatively more than to the ones of the late reformers. The paper also finds a significant growth acceleration effect from market-oriented reforms over shorter periods of time. However, the growth acceleration effects dissipate over longer periods. A number of robustness checks support these conclusions.
Keywords: Economic Growth; Political Economy of Reforms; Energy Independence JEL Classification: O11, O47, O57, P48
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1. INTRODUCTION
The 1970s productivity decline triggered a wide range of policy responses, including economic deregulation-the state's withdrawal of its legal powers to direct pricing, entry and exit (Winston, 1993). Deregulation reforms were initiated in the US (Morgan, 2004; Winston, 1998), followed by the UK and other developed economies in the early 1980s (Matthews et al., 1987; Pera, 1989) and were imitated by the new democracies and many developing countries in the 1990s. The process continued in the 21st century (Wölfl et al., 2009) until the global economic and financial crisis stalled the momentum for deregulation reforms (Stankov, 2017).
The differences in the deregulation reform timing across countries point to a natural question: Did the early reformers-those countries reforming extensively in the 1970s and the 1980s-benefit more than the late reformers in improving their living standards and in accelerating economic growth? If they did, then the economies that innovated with deregulation enjoyed growth, while those who imitated those reforms did not always benefit from deregulation, as Rodrik (2008) suggests.
Answering this question is important at least for two reasons. On the one hand, most of the literature uses the time variation of various reform indices. However, using those directly in estimations is problematic because equal changes in the indices represent unequal policy changes. This work proposes a way out from this problem by using a difference-in-difference estimation which gets around the direct use of reform indices.
On the other hand, few papers account for where the time variation in...