Structural reforms and firms' productivity: Evidence from developing countries

This paper assesses the effects of selected structural reforms on labor productivity growth for 37 developing countries over the 2006-14 period. It combines newly constructed reform indexes using the IMF Monitoring of Fund Arrangements dataset and firm-level productivity from the World Bank Enterprise Surveys. The paper highlights the following results. Structural reforms under consideration in this study, i.e., financial, fiscal, real sector, and trade reforms, significantly improve productivity at the firm level. Interestingly, real sector reforms have the most sizeable effects on firms' productivity. The relationship between reforms and productivity is nonlinear and shaped by certain firms' characteristics, including financial access, a distortionary environment, and firms' size. The pace of reforms matters since being a “strong reformer” is associated with a clear productivity dividend for firms. Finally, except for financial and trade reforms, all macroeconomic reforms considered are bilaterally complementary in improving firms' productivity. The findings are robust to several sensitivity checks including alternatives measure of productivity, and a counterfactual experiment based on unsuccessful reforms.