Chapter 1

importance of tax-financed public goods and infrastructure for nonproductive public expenditures and the associated
as well as the need to minimize the distortionary effects of tax burden. The average tariff rate represents protectionist
taxation; Ann Krueger and D. Orsmond (1990) argue for policies and price distortions not only in the tradable sector
trade openness; Robert King and Ross Levine (1993) under- but in the whole economy as well. Finally, the ratio of
line the importance of financial innovation; Wllliam Easterly exports to GDP accounts for outward orientation and the
(1993) points out the importance of flexible, market-determined
relative prices; and Stanley Fischer (1993) empha-
degree of competitiveness in international markets.'
sizes the role of macroeconomic stability.
Originally developed to furnish evidence for testing the
Structural reforms and growth in Tunisia
theoretical models, empirical studies using cross-country In 1986 the Tunisian government initiated a comprehensive
data provide policy makers with a wealth of information on program of structural reforms. Their accomplishments and
the extent structural reforms promote economic growth. shortcomings, as well as their necessary next steps, have
Some of the most widely cited empirical studies are those been analyzed in the previous chapters. Mostly as a result
conducted by Robert Barro (1991), Robert Barro and X. of these reforms, the per capita GDP growth rate increased
Sala-i-Martin (1994), Wllliam Easterly (1993), and the significantly from an average of 1.15 percent during
analysis undertaken by a team of economists for The East 1981-86 to 2.44 percent for 1987-94. Using the estimates
Asian Miracle (World Bank 1993a). In general terms, their provided in table 4.3, the contributing factors of this
main conclusion is that economic growth is maximized when enhanced growth performance can be assessed
the incentives to invest in physical and human capital as well quantitatively.
as in technological innovation are determined by free-mar- The prereform period is represented by the years
ket forces. Governments assist this process by providing an 1981-86, and the reform period consists of the years
environment of macroeconomic and political stability and 1987-94. Given that particularly during the first three years
the appropriate public infrastructure. of the reform (1987-89) the economy underwent a rather
These empirical studies provide estimates for the effect TABLE 4.3
of various economic variables on the growth rate of percapita
GDP Since it is very difficult to directly assess the
Determinants of economic growth
importance of broadly defined reforms, such as improvee
ments in "human capital investment' or "price distortions,
An increase in:
Investment/GDP
of:
I percentage point
will change per
capita GDP growth by:
0.1 to 0.2 percent
researchers have used readily observable variables as prox- Average years of
ies for these reforms. Table 4.3 reports some of these secondary education I year 0.8 to 1.2 percent
estimates.
Govemment spending
on education/GDP I percentage point 0.2 percent
The first variable, the ratio of investment to GDP, repre- Life expectancy at birth 10 percentage points 0.7 percent
sents physical capital formation across al sectors in the
economy. The next three variables proxy for the level of
M2/GDP
Black market exchange
rate (premium over
1O percentage points 0.2 to 0.4 percent
human capital in the country. Average years of secondary
education in the adult population (aged twenty-five and
official rate)
Govemment consump-
tion (net of education
10 percentage points -0.4 percent
over) and life expectancy at birth represent measures of spending)/GDP I0 percentage points -1.2 percent
educational attainment and health conditions, respectively; Average tariff rate 10 percentage points -0.2 percent
Exports/GDP 10 percentage points 0.6 percen,t
governizent spending on education, as a ratio to GDP, EpsGDI pecnaeoit 06pret
g Note: Somne caution nwat be taen when appying the estirmated effects presented in this
roughly accounts for quality of education and public table to the experience of a particular country. The variables considered to explain
involvement in working-force training programs. The vari- conornc condwns. for sirc coueor ut not hact mneasures y unreresn socioeable
M2/GDP is a proxy for the state of development of the
financial system. The black-market exchange rate premium
conditions in a more direct and comprehensive way (for exarnple, a measure of consumption
subsidies is better than the bbck-rnarket exchange rate premium as a proxy for
price distortions), however, these other variables are usually not available for a large
over official rate is a proxy for government-induced price aoup of thourteswicnawh
rac oftheesimaed ffetsof
is needed
change
to obtain
in the
reliable
explanatry
ecorometric
varables
estimates.
on the growth
The accu-
rate is
distortions in the economy. The ratio of government con- highest when the country in question is representative of the wod sample and when
the considered changes are snall relative to the size of the variables.
sumption (net of spending on education) to GDP proxies Source: Barro 1991; Easterly 1993; and Barro and Sala-i-Martin 1994.
POUCIES FOR HGHER GROWTH 47