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The Inverse Domino Effect: Are Economic Reforms Contagious?

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Author Info
Martin Gassebner () (KOF Swiss Economic Institute, ETH Zurich)
Noel Gaston () (School of Business, Bond University, Gold Coast, Qeensland, Australia)
Michael Lamla () (KOF Swiss Economic Institute, ETH Zurich)

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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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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 08-187.

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Length: 29 pages
Date of creation: Feb 2008
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Handle: RePEc:kof:wpskof:08-187

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Related research
Keywords: Economic reforms; economic freedom; resource flow models; spatial interdependence;

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Find related papers by JEL classification:
H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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(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. Aidt, T.S. & Gassebner, M., 2007. "Do Autocratic States Trade Less?," Cambridge Working Papers in Economics 0742, Faculty of Economics, University of Cambridge. [Downloadable!]
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