What determines the likelihood of structural reforms?

- External debt crises are the main trigger of financial and banking reforms.
- Inflation and banking crises are key drivers of external capital account reforms.
- Economic recessions promote reforms, especially in the group of OECD-countries.
- Globalisation is relevant for financial reforms, especially for non-OECD countries.
- An increase in the income gap accelerates the implementation of structural reforms.

We use data for a panel of 60 countries over the period 1980-2005 to investigate the main drivers of the likelihood of structural reforms. We find that: (i) external debt crises are the main trigger of financial and banking reforms; (ii) inflation and banking crises are the key drivers of external capital account reforms; (iii) banking crises also hasten financial reforms; and (iv) economic recessions play an important role in promoting the necessary consensus for financial, capital, banking and trade reforms, especially in the group of OECD-countries. Additionally, we also observe that the degree of globalisation is relevant for financial reforms, in particular in the group of non-OECD countries. Moreover, an increase in the income gap accelerates the implementation of structural reforms, but increased political fragmentation does not seem to have a significant impact.