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Growth effects of structural reforms in Southern Europe: the case of Greece, Italy, Spain and Portugal

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  • Janos Varga
  • Werner Roeger
  • Jan in’t Veld
Abstract
This paper develops a semi-endogenous growth model for analysing the intertemporal effects of structural reforms in Southern European countries (Italy, Spain, Portugal and Greece). The model follows the product-variety paradigm in a semi-endogenous setting, and includes a disaggregation of labour into different skill groups. We use a comprehensive set of structural indicators in order to calibrate the model to important macroeconomic ratios and levels of productivity and employment. Our results show that structural reforms yield significant economic gains in the medium and long run. The results point to the importance of product market reforms and labour market related education and tax reforms as the most promising areas of structural policy interventions. This paper also argues for placing more emphasis on education policy which is key in upgrading the labour force, especially in these countries where the share of low skilled labour is among the highest in the euro area. Copyright European Union 2014

Suggested Citation

  • Janos Varga & Werner Roeger & Jan in’t Veld, 2014. "Growth effects of structural reforms in Southern Europe: the case of Greece, Italy, Spain and Portugal," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(2), pages 323-363, May.
    • Handle: RePEc:kap:empiri:v:41:y:2014:i:2:p:323-363
    DOI: 10.1007/s10663-014-9253-3
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    2. Hielscher Kai, 2016. "Growth in European Crisis Countries: Cyclical Normality or the Result of Structural Reforms?," Review of Economics, De Gruyter, vol. 67(1), pages 1-23, May.
    3. Matthias Burgert & Werner Roeger & Janos Varga & Jan in 't Veld & Lukas Vogel, 2020. "A Global Economy Version of QUEST: Simulation Properties," European Economy - Discussion Papers 126, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. World Bank Group, 2015. "EU Regular Economic Report, Fall 2015," World Bank Publications - Reports 23606, The World Bank Group.
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    6. Uctum Merih & Uctum Remzi & Vijverberg Chu-Ping C., 2021. "The European growth synchronization through crises and structural changes," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 25(1), pages 1-17, February.
    7. Aida Caldera Sánchez & Alain de Serres & Naomitsu Yashiro, 2017. "Reforming in a Difficult Macroeconomic Context: A Review of Issues and Recent Literature," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 1-41, February.
    8. Manuel A. Gómez & Tiago Neves Sequeira, 2016. "R&D Subsidies and Foreign Direct Investment," Open Economies Review, Springer, vol. 27(4), pages 769-793, September.
    9. Agénor, Pierre-Richard & Lim, King Yoong, 2018. "Unemployment, growth and welfare effects of labor market reforms," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 19-38.
    10. Barbara Annichiarico & Fabio Di Dio & Francesco Felici, 2016. "IGEM II: a New Variant of the Italian General Equilibrium Model," Working Papers 4, Department of the Treasury, Ministry of the Economy and of Finance.
    11. Growiec, Jakub & McAdam, Peter & Mućk, Jakub, 2018. "Endogenous labor share cycles: Theory and evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 74-93.
    12. Vogel, Lukas, 2017. "Structural reforms at the zero bound," European Journal of Political Economy, Elsevier, vol. 48(C), pages 74-90.
    13. Philipp Pfeiffer & Janos Varga & Jan in 't Veld, 2021. "Quantifying Spillovers of Next Generation EU Investment," European Economy - Discussion Papers 144, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    14. Yannis M. Ioannides, 2015. "Why Productivity Enhancing Reforms Will Help Greece Exit the Crisis and Usher in Long Run Growth," Discussion Papers Series, Department of Economics, Tufts University 0807, Department of Economics, Tufts University.
    15. Roeger, Werner & Varga, Janos & Veld, Jan in 't & Vogel, Lukas, 2021. "The distributional impact of labour market reforms: A model-based assessment," European Economic Review, Elsevier, vol. 131(C).
    16. Campagne, Benoît & Poissonnier, Aurélien, 2018. "Structural reforms in DSGE models: Output gains but welfare losses," Economic Modelling, Elsevier, vol. 75(C), pages 397-421.
    17. Agostino Consolo & Marco Langiulli & David Sondermann, 2019. "Business investment in euro area countries: the role of institutions and debt overhang," Applied Economics Letters, Taylor & Francis Journals, vol. 26(7), pages 561-575, April.
    18. Emanuela Ciapanna & Sauro Mocetti & Alessandro Notarpietro, 2020. "The effects of structural reforms: Evidence from Italy," Temi di discussione (Economic working papers) 1303, Bank of Italy, Economic Research and International Relations Area.
    19. Fritz Breuss, 2015. "In Search of Growth in a Future with Diminished Expectations. The Case of Austria," WIFO Working Papers 493, WIFO.
    20. Janos Varga & Jan in 't Veld, 2014. "The potential growth impact of structural reforms in the EU. A benchmarking exercise," European Economy - Economic Papers 2008 - 2015 541, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

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    More about this item

    Keywords

    Productivity differences; Endogenous growth; R&D; Market structure; Skill composition; Dynamic general equilibrium modelling; E10; O20; O30; O41;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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