Growth-Equity Trade-offs in Structural Reforms

By Jonathan David Ostry, Andrew Berg, Siddharth Kothari

January 5, 2018

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Jonathan David Ostry, Andrew Berg, and Siddharth Kothari. Growth-Equity Trade-offs in Structural Reforms, (USA: International Monetary Fund, 2018) accessed December 21, 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

Do structural reforms that aim to boost potential output also change the distribution of income? We shed light on this question by looking at the broad patterns in the cross-country data covering advanced, emerging-market, and low-income countries. Our main finding is that there is indeed evidence of a growth-equity tradeoff for some important reforms. Financial and capital account liberalization seem to increase both growth and inequality, as do some measures of liberalization of current account transactions. Reforms aimed at strengthening the impartiality of and adherence to the legal system seem to entail no growth-equity tradeoff—such reforms are good for growth and do not worsen inequality. The results for our index of network reforms as well as our measure of the decentralization of collective labor bargaining are the weakest and least robust, potentially due to data limitations. We also ask: If some structural reforms worsen inequality, to what degree does this offset the growth gains from the reforms themselves? While higher inequality does dampen the growth benefits, the net effect on growth remains positive for most reform indicators.

Subject: Balance of payments, Capital account liberalization, Employment protection, Income inequality, Labor, Labor market reforms, Macrostructural analysis, National accounts, Structural reforms

Keywords: Capital account liberalization, Collective bargaining, Current account, Employment protection, Global, Growth, Income inequality, Inequality, Inequality regression, Labor market reforms, Market inequality, Pc GDP, Reform episode, Structural Reforms, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/005
Stock No:

WPIEA2018005
ISBN:

9781484336809
ISSN:

1018-5941

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