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Title:Explaining Reform Deadlocks PDF Logo
Authors:Heinemann, Friedrich
Issue Date:2004
Series/Report no.:ZEW Discussion Papers 04-39
Abstract:Countries are often slow to adjust their economic structures to new necessities although this reform reluctance is costly in terms of growth and employment. This paper analyses the relevant factors that block or foster economic reforms. Theoretical considerations show that there are at least three classes of potentially relevant factors: the objective need for reforms, political-economic issues and factors associated with limited rationality or rational ignorance. In the empirical analysis, a reform event is quantified as a significant change of the Economic Freedom of the World indicator within a five-year-period. This allows to run probit estimations for a large country panel starting in the 1970s where the probability of reform is explained by a number of proxies covering all three classes of potential factors. The results suggest that the initial extent of economic freedom and growth performance are empirically relevant factors. Furthermore, countries with an ageing population appear to behave less reform friendly.
Subjects:economic policy reforms
economic freedom
reform resistance
limited rationality
JEL:E63
H00
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des ZEW
ZEW Discussion Papers

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