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Governance structures and the durability of economic reforms; evidence from inflation stabilizations

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  • Ball, Richard
  • Rausser, Gordon C.

Abstract

This paper investigates the relationship between a country's political-economic and institutional environment, and its ability to implement sustainable economic reform programs. The policy issue on which the study focuses is inflation stabilization. It consists principally of econometric estimations of the relationship between the success of stabilizations in a large sample of countries and several political and economic explanatory variables. The hypotheses tested are drawn both from the recent macroeconomic literature on policy credibility and from political science. The major findings include the following: (1) Despite the "conventional wisdom" to the contrary, political repression does not appear to be an effective means for implementing sustainable stabilization policies. Durable economic reforms and political freedoms appear to be complementary. (2) As has been previously argued theoretically and demonstrated empirically, political instability is detrimental to policy reform. (3) The political will and popular consensus for stabilization policies are enhanced during a severe economic crisis. (4) There is weak evidence that intervention by the IMF, rather than supporting reform programs, can undermine their credibility.

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Bibliographic Info

Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt7qt9r513.

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Date of creation: 01 Dec 1993
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Handle: RePEc:cdl:agrebk:qt7qt9r513

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Keywords: economic conditions; economic policy; macroeconomics; Social and Behavioral Sciences;

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References

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  1. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-55, June.
  2. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  3. Thomas J. Sargent, 1981. "The ends of four big inflations," Working Papers 158, Federal Reserve Bank of Minneapolis.
  4. Dornbusch, Rudiger, 1990. "Credibility and Stabilization," CEPR Discussion Papers 454, C.E.P.R. Discussion Papers.
  5. Alesina, Alberto, 1992. "Political models of macroeconomic policy and fiscal reform," Policy Research Working Paper Series 970, The World Bank.
  6. Rodrik, Dani, 1990. "How should structural adjustment programs be designed?," World Development, Elsevier, vol. 18(7), pages 933-947, July.
  7. Dani Rodrik, 1988. "Promises, Promises: Credible Policy Reform via Signaling," NBER Working Papers 2600, National Bureau of Economic Research, Inc.
  8. Persson, Torsten & Svensson, Lars E O, 1989. "Why a Stubborn Conservative Would Run a Deficit: Policy with Time-Inconsistent Preferences," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 325-45, May.
  9. Nelson, Joan M., 1984. "The political economy of stabilization: Commitment, capacity, and public response," World Development, Elsevier, vol. 12(10), pages 983-1006, October.
  10. Adam Przeworski & Fernando Limongi, 1993. "Political Regimes and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 51-69, Summer.
  11. Jeffrey D. Sachs, 1985. "External Debt and Macroeconomic Performance in Latin America and East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 523-573.
  12. Ruttan, Vernon W, 1991. "What Happened to Political Development?," Economic Development and Cultural Change, University of Chicago Press, vol. 39(2), pages 265-92, January.
  13. Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March.
  14. Haggard, Stephan & Webb, Steven B, 1993. "What Do We Know about the Political Economy of Economic Policy Reform?," World Bank Research Observer, World Bank Group, vol. 8(2), pages 143-68, July.
  15. Scully, Gerald W, 1988. "The Institutional Framework and Economic Development," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 652-62, June.
  16. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August.
  17. Rudiger Dornbusch & Ferico Sturzenegger & Holger Wolf, 1990. "Extreme Inflation: Dynamics and Stabilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 1-84.
  18. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  19. Tabellini, Guido & Alesina, Alberto, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Scholarly Articles 3612769, Harvard University Department of Economics.
  20. Stephan Haggard & Robert Kaufman, 1989. "The Politics of Stabilization and Structural Adjustment," NBER Chapters, in: Developing Country Debt and the World Economy, pages 263-274 National Bureau of Economic Research, Inc.
  21. Haggard, Stephan, 1985. "The politics of adjustment: lessons from the IMF's Extended Fund Facility," International Organization, Cambridge University Press, vol. 39(03), pages 505-534, June.
  22. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  23. Edwards, Sebastian & Tabellini, Guido, 1991. "Explaining fiscal policies and inflation in developing countries," Journal of International Money and Finance, Elsevier, vol. 10(1, Supple), pages S16-S48, March.
  24. Ahamed, Liaquat, 1986. "Stabilization Policies in Developing Countries," World Bank Research Observer, World Bank Group, vol. 1(1), pages 79-110, January.
  25. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  26. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
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Cited by:
  1. Campos, Nauro F., 2000. "Context is everything : measuring institutional change in transition economies," Policy Research Working Paper Series 2269, The World Bank.
  2. Vítor Castro, 2003. "The Impact of Conflicts of Interest on Inflation Stabilization," NIPE Working Papers 8/2003, NIPE - Universidade do Minho.
  3. Campos, Nauro F. & Nugent, Jeffrey B., 1999. "Development Performance and the Institutions of Governance: Evidence from East Asia and Latin America," World Development, Elsevier, vol. 27(3), pages 439-452, March.
  4. Francisco José Veiga, 2002. "IMF arrangements, politics and the timing of stabilizations," NIPE Working Papers 2/2002, NIPE - Universidade do Minho.
  5. Francisco José Veiga, 2003. "The Political Economy of Failed Stabilization," NIPE Working Papers 13/2003, NIPE - Universidade do Minho.

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