policy reform (after two period, through 1998), broadly consistent with the existing literature. These cumulative effects are less perceptible in recent years, as expected.<sup>11</sup> Table 4. Determinants of Economic Growth, 1992-2004: Lagged Effects and Time-Varying Impact

|||All|||Through 1|998||1999 Onwa|rds|
|---|---|---|---|---|---|---|---|---|---|
||OLS<br>(1)|Fixed Effects<br>(2)|Random Effects<br>(3)|OLS<br>(4)|Fixed Effects<br>(5)|Random Effects<br>(6)|OLS<br>(7)|Fixed Effects<br>(8)|Random Effects<br>(9)|
|War dummy|-2.49|-4.60**|-3.1|3.41|1.45|1.52|-18.39***|-20.30***|-18.58***|
||(0.68)|(2.15)|(1.55)|(0.90)|(0.49)|(0.58)|(2.80)|(6.24)|(6.66)|
|Ln(inflation)|-1.70***|-1.44***|-1.62***|-3.24***|-3.24***|-3.32***|-0.29|-0.08|-0.29|
||(4.71)|(3.39)|(5.15)|(4.47)|(4.54)|(5.80)|(1.07)|(0.18)|(0.98)|
|Fiscal balance (%GDP) (IMF)|0.46***|0.78***|0.55***|0.16|0.49*|0.36*|0.49***|0.58***|0.49***|
||(3.53)|(5.94)|(4.92)|(0.79)|(1.86)|(1.66)|(6.39)|(3.35)|(4.44)|
|Overall index of reform (t)|-0.31|-0.70*|-0.38|0.17|-0.42|-0.15|-0.77*|-1.48**|-0.84|
||(0.65)|(1.77)|(1.12)|(0.32)|(0.84)|(0.38)|(1.74)|(2.07)|(1.43)|
|Overall index of reform (t-1)|-0.2|-0.03|-0.15|-0.57|-0.64|-0.67|0.54|1.05|0.6|
||(0.35)|(0.06)|(0.32)|(0.92)|(1.20)|(1.33)|(0.94)|(1.24)|(0.75)|
|Overall index of reform (t-2)|0.39|0.44*|0.40|0.38|0.58*|0.51*|0.00|0.09|0.02|
||(1.49)|(1.67)|(1.50)|(1.19)|(1.85)|(1.68)|(0.01)|(0.18)|(0.04)|
|Constant|13.39***|18.57***|13.97***|13.85*|26.89**|22.63***|13.88***|17.49*|14.00***|
||(3.53)|(2.85)|(4.42)|(1.71)|(2.50)|(3.36)|(4.17)|(1.88)|(5.76)|
|Observations|259|259|259|115|115|115|144|144|144|
|R-squared|0.31|0.39||0.39|0.47||0.35|0.33||
|Number of countries||25|25||25|25||25|25|

Robust t statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1% What is notable is that fiscal balance is consistently a strong positive determinant of economic growth, regardless of the lag structure, and particularly in recent period. Inflation, as a measure of macroeconomic stability is also a significant determinant, but less so in more recent years.

D. Institutional Quality & Size of Government Does governance matter for economic growth? Unfortunately, available data on governance indicators are still insufficient to fully exploit the panel data on growth and its key determinants. Data from the Governance Indicators database cover only the latter half of our panel dataset, while BEEPS data cover only a couple of years. Notwithstanding these data difficulties, we use two measures of governance— government effectiveness and quality of public sector management and institutions from the Governance Indicators and CPIA databases, respectively—to create sub-samples of countries with relatively lower, and relatively higher, governance (median) scores. We then re-run the baseline model using these sub-samples.

In addition, we test more formally for the existence of a statistical relationship between size of government and growth following the discussion in Section 2. We also

> 11 There are some variables that may affect both the evolution of reforms and economic growth. Dethier and others (1999) for example suggest that democracy may help promote market liberalization. To the extent that political freedom and civil liberties are also related to growth, these interrelationships need to be more fully accounted for.

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