Growth, Reform Indicators and Policy Complementarities

In order to assess the growth implications of policy complementarities, this paper applies second-best results to reform indicators. During the transition from central planning to EU integration, which corresponds to a policy cycle, a complementarity index based on structural indicators compiled by the European Bank for Reconstruc- tion and Development (EBRD) decreases and then increases while the level of reforms tends to rise throughout. Corrected for initial conditions, the extent of macroeconomic stabilization and endogeneity, the level of reforms and changes in their complementarity are found to be positively related to output growth. The study uses panel data for 27 countries between 1989 and 2004.