Structural Changes, Structural Reforms and Economic Growth

In the modern and globalized economic environment, the need for structural reforms is imperative for economies to adapt to modern conditions and structural changes. The purpose of this chapter is to analyse the causes leading to this need, focusing on supply-side policies, and the changes taking place globally, which structurally affect the way economies function. The analysis continues with the transition from industry-based to service-based economies, pointing to the potential consequences on economies. In addition, the issues of domestic structural changes that can cause deviations from the optimal growth path, time complications (short-term and long-term impact) that come with structural reforms and the interaction of the reform adjustment target—the time needed for the economy to adapt to structural reforms—are discussed.

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Notes

1. 1. Public or private debt (as a percentage of GDP) needs to be reduced, because, after some level, they pose a threat to medium- and long-term growth.
2. 2. Implementation of structural measures (including internal devaluation) in order to liberalize production and increase confidence in the economic system. In such a case, future taxes will be reduced, current consumption will increase and the problems caused by fiscal adjustment will be addressed.
3. 3. If current taxes or debt increase (and, hence, taxes in the future), the level of demand will remain unchanged, reflecting a Ricardian equivalence: increasing savings to pay future taxes to pay off debt and, thus, reducing consumption. Expansionary fiscal policy is therefore not a viable solution.
4. 4. Monetary policies that encourage excessive investment lead to increased inflation risks and debt costs (i.e. a threat to growth).
5. 5. Reducing the deficit-ridden Net Foreign Investment Position is a top priority. Budgetary and external deficits should be reduced. This is the reason for imposing an internal devaluation, since there is no option for an external devaluation.

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Author information

Authors and Affiliations

1. Department of Economics, National and Kapodistrian University of Athens, Athens, Greece Panagiotis E. Petrakis, Dionysis G. Valsamis & Kyriaki I. Kafka

1. Panagiotis E. Petrakis