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In Search of the Holy Grail: Policy Convergence, Experimentation and Economic Performance

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Author Info
Mukand, Sharun W.
Rodrik, Dani

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Abstract

We consider a model of policy choice in which appropriate policies depend on a country’s own circumstances, but the presence of a successful leader generates an informational externality and results in too little ‘policy experimentation’. Corrupt governments are reined in while honest governments are disciplined inefficiently. Our model yields distinct predictions about the patterns of policy imitation, corruption, and economic performance as a function of a country’s location vis-à-vis successful leaders. In particular, it predicts a U-shaped pattern in economic performance as we move away from the leader in the relevant space of characteristics: close neighbors should do very well, distant countries moderately well on average with considerable variance, and intermediate countries worst of all. An empirical test with the experience of post-socialist countries provides supportive results.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3525.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3525

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Related research
Keywords: convergence; economic growth; institutions;

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Find related papers by JEL classification:
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Sharun Mukand & Dani Rodrik, 2002. "In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance," NBER Working Papers 9134, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Dani Rodrik, 2000. "Institutions for High-Quality Growth: What They are and How to Acquire Them," NBER Working Papers 7540, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March. [Downloadable!] (restricted)
    Other versions:
  4. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 00/30, International Monetary Fund.
  5. Michael Kremer & Alexei Onatski & James Stock, 2001. "Searching for Prosperity," NBER Working Papers 8250, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Raiser, M. & Di Tommaso, M.L. & Weeks, M., 2000. "The Measurement and Determination of Institutional Change: Evidence from Transition Economics," Cambridge Working Papers in Economics 0029, Faculty of Economics, University of Cambridge. [Downloadable!]
  7. Dani Rodrik, 2003. "Growth Strategies," NBER Working Papers 10050, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank. [Downloadable!]
  9. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," NBER Working Papers 7664, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Berkowitz, Daniel & Pistor, Katharina & Richard, Jean-Francois, 2003. "Economic development, legality, and the transplant effect," European Economic Review, Elsevier, vol. 47(1), pages 165-195, February. [Downloadable!] (restricted)
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  11. Mukand, Sharun W., 2006. "Globalization and the `confidence game'," Journal of International Economics, Elsevier, vol. 70(2), pages 406-427, December. [Downloadable!] (restricted)
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  12. Eduardo Borensztein & Ratna Sahay & Jeromin Zettelmeyer & Andrew Berg, 1999. "The Evolution of Output in Transition Economies - Explaining the Differences," IMF Working Papers 99/73, International Monetary Fund.
  13. Douglass C. North, 1993. "The Paradox of the West," Economic History 9309005, EconWPA. [Downloadable!]
  14. North, Douglass C, 1994. "Economic Performance through Time," American Economic Review, American Economic Association, vol. 84(3), pages 359-68, June.
  15. Katharina PISTOR, 2000. "The Standardization Of Law And Its Effect On Developing Economies," G-24 Discussion Papers 4, United Nations Conference on Trade and Development. [Downloadable!]
  16. Jefferson, Gary H & Rawski, Thomas G, 1994. "Enterprise Reform in Chinese Industry," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 47-70, Spring. [Downloadable!] (restricted)
  17. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn. [Downloadable!] (restricted)
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  18. de Melo, Martha & Denizer, Cevdet & Gelb, Alan & Tenev, Stoyan, 1997. "Circumstance and choice : the role of initial conditions and policies in transition economies," Policy Research Working Paper Series 1866, The World Bank. [Downloadable!]
  19. Dewatripont, Mathias & Roland, Gerard, 1995. "The Design of Reform Packages under Uncertainty," American Economic Review, American Economic Association, vol. 85(5), pages 1207-23, December. [Downloadable!] (restricted)
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  20. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September. [Downloadable!] (restricted)
  21. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Aggregating governance indicators," Policy Research Working Paper Series 2195, The World Bank. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sharun W. Mukand & Dani Rodrik, 2005. "In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance," American Economic Review, American Economic Association, vol. 95(1), pages 374-383, March. [Downloadable!]
    Other versions:
  2. Wacziarg, Romain & Spolaore, Enrico, 2006. "The Diffusion of Development," Research Papers 1898r1, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  3. Hausmann, Ricardo & Rodrik, Dani, 2002. "Economic Development as Self-Discovery," Working Paper Series rwp02-023, Harvard University, John F. Kennedy School of Government. [Downloadable!]
    Other versions:
  4. Mariano Tommasi, 2003. "Crises, institutions politiques et réformes politiques : le bon, le mauvais et l'affreux," Revue d’économie du développement, De Boeck Université, vol. 17(2), pages 49-81. [Downloadable!]
  5. Rodrik, Dani, 2008. "The New Development Economics: We Shall Experiment, but How Shall We Learn?," Working Paper Series rwp08-055, Harvard University, John F. Kennedy School of Government. [Downloadable!]
  6. Daron Acemoglu & Simon Johnson & Pablo Querubin & James A. Robinson, 2008. "When Does Policy Reform Work? The Case of Central Bank Independence," NBER Working Papers 14033, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Branko Milanovic, 2003. "The Ricardian Vice: Why Sala-i-Martin’s calculations of world income inequality are wrong," HEW 0305003, EconWPA. [Downloadable!]
  8. Francisco J. Buera & Alexander Monge-Naranjo & Giorgio E. Primiceri, 2008. "Learning the Wealth of Nations," NBER Working Papers 14595, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Levi-Faur, David & Jordana, Jacint, 2004. "The Rise of the Regulatory State in Latin America: A Study of the Diffusion of Regulatory Reforms Across Countries and Sectors," Centre on Regulation and Competition (CRC) Working papers 30621, University of Manchester, Institute for Development Policy and Management (IDPM). [Downloadable!]
  10. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Philip R. Lane, 2003. "The International Community and the CIS-7," The Institute for International Integration Studies Discussion Paper Series iiisdp04, IIIS. [Downloadable!]
    Other versions:
  12. Dani Rodrik & Francesco Trebbi & Arvind Subramanian, 2002. "Institutions Rule: The Primacy of Institutions over Integration and Geography in Economic Development," IMF Working Papers 02/189, International Monetary Fund. [Downloadable!]
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