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.
