TY - BOOK ID - 133899079 TI - Identifying Reform Priorities: The Role of Non-linearities PY - 2020 PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Business and Economics KW - Macroeconomics KW - Economics: General KW - International Economics KW - Institutions and Growth KW - Economic & financial crises & disasters KW - Economics of specific sectors KW - Financial crises KW - Economic sectors KW - Currency crises KW - Informal sector KW - Economics UR - https://www.unicat.be/uniCat?func=search&query=sysid:133899079 AB - Can countries improve their business climate through reforms in specific policy areas? Kraay and Tawara (2013) find that the answer depends on how we measure the business climate. When regressing seven different business climate indices on 38 policy indicators, they find little agreement among the seven models as to which of those policy indicators matter most. I revisit this puzzle using the same data but replacing their linear models with a Random Forest algorithm. I find a strong consensus across models on the importance ranking of policy indicators: No matter which business climate index is considered, the top ten contributors to a better business climate always include high recovery rates in insolvency proceedings (i.e., cents on the dollar for creditors), shorter border formalities for both importers and exporters, and low costs for starting a business. I show that the marginal effect of reforms is heterogeneous across countries and document how reform priorities depend on country specific circumstances. ER -