Economic Uncertainty and Structural Reforms

Alessandra Bonfiglioli () and Gino Gancia

No 10937, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Does economic uncertainty promote the implementation of structural reforms? We answer this question using one of the most exhaustive cross-country panel data set on reforms in six major areas and measuring economic uncertainty with stock market volatility. To address endogeneity concerns, we propose various identification strategies, instrumenting uncertainty with world shocks to volatility and with natural disasters, terrorist attacks, political coups and revolutions. Across all specifications, we find that uncertainty has a positive and significant effect on the adoption of reforms. This result is robust to the inclusion of a large number of controls, including political variables, economic variables, crisis indicators, and a host of country, reform and time fixed effects. These findings are broadly consistent with recent models suggesting that uncertainty promotes reforms by mitigating agency problems between policy makers and voters.

Keywords: Reforms; Uncertainty (search for similar items in EconPapers)
JEL-codes: E02 E60 L51 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Economic Uncertainty and Structural Reforms (2018)
Working Paper: Economic uncertainty and structural reforms (2018)
Working Paper: Economic Uncertainty and Structural Reforms (2015)
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