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Title:The inverse domino effect: Are economic reforms contagious? PDF Logo
Authors:Gassebner, Martin
Gaston, Noel
Lamla, Michael
Issue Date:2007
Series/Report no.:KOF working papers // Konjunkturforschungsstelle, Eidgenössische Technische Hochschule Zürich 187
Abstract:This paper examines whether a country's economic reforms are affected by reforms adopted by other countries. A simple model of economic reforms is developed to motivate the econometric work. Unsurprisingly, the model predicts that reforms are more likely when factors of production are internationally mobile and reforms are pursued in other economies. More interesting is the finding that reforms are not driven by greater trade openness. Using the change in the Index of Economic Freedom as the measure of market-liberalising reforms, we examine two issues. Using data for a panel of 144 countries and the years 1995-2006, we identify the most important channels through which reforms are transmitted from country to country. We find evidence of the importance of reforms in other countries. Moreover, consistent with our model, international trade is not a vehicle for the diffusion of economic reforms, rather the most important mechanism is geographical or cultural proximity.
Subjects:Economic reforms
economic freedom
resource flow models
spatial interdependence
JEL:H71
H77
P51
O57
Persistent Identifier of the first edition:doi:10.3929/ethz-a-005552205
Document Type:Working Paper
Appears in Collections:KOF Working Papers, KOF Konjunkturforschungsstelle, ETH Zürich

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