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The Inverse Domino Effect: Are Economic Reforms Contagious?

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  • Martin Gassebner
  • Noel Gaston
  • Michael J. Lamla

Abstract

This paper examines whether a country's economic reform 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 the 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.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 52 (2011)
Issue (Month): 1 (02)
Pages: 183-200
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Handle: RePEc:ier:iecrev:v:52:y:2011:i:1:p:183-200

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References

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Citations

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Cited by:
  1. Philippa Dee, 2011. "Promoting Domestic Reforms Through Regionalism," Crawford School Research Papers 1107, Crawford School of Public Policy, The Australian National University.
  2. Baldwin, Richard & Jaimovich, Dany, 2010. "Are Free Trade Agreements Contagious?," CEPR Discussion Papers 7904, C.E.P.R. Discussion Papers.
  3. Toke S. Aidt & Martin Gassebner, 2007. "Do Autocratic States Trade Less?," KOF Working papers 07-175, KOF Swiss Economic Institute, ETH Zurich.
  4. Songying Fang & Erica Owen, 2011. "International institutions and credible commitment of non-democracies," The Review of International Organizations, Springer, vol. 6(2), pages 141-162, July.
  5. Andreas Steiner, 2010. "Contagious Policies: An Analysis of Spatial Interactions Among Countries’ Capital Account Policies," Working Papers 80, Institute of Empirical Economic Research.
  6. Seo-Young Cho & Krishna Chaitanya Vadlamannati, 2011. "Compliance for Big Brothers An Empirical Analysis on the Impact of the Anti-trafficking Protocol," cege – Center for European, Governance and Economic Development Research Discussion Papers 118, cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany)., revised 08 Feb 2011.

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