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What makes reforms likely: Political economy determinants of reforms in Latin America



The purpose of this paper is to test the main hypotheses of the recent theoretical literature on the political economy of reform for the case of the Latin American countries between 1985 and 1995. The paper first reviews the literature and extracts the main testable hypotheses. Then, a system of indices that measure the extent of reform in five policy areas is presented. These indices are used as the dependent variables in panel regressions where the main explanatory variables are indicators of crisis, political variables and indicators of channels of contagion. We find very strong support for the well-known hypothesis that crises make reform viable and also for the (less theoretically sound) hypotheses that reforms are more likely at the beginning of government periods. None of the hypotheses on the role of political and distributional variables, the importance of compensation schemes or contagion, finds support in our results. Rather disappointingly, however, most of the reforms seem to have responded to a process of convergence.

Suggested Citation

  • Eduardo Lora & Mauricio Olivera, 2004. "What makes reforms likely: Political economy determinants of reforms in Latin America," Journal of Applied Economics, Universidad del CEMA, vol. 7, pages 99-135, May.
  • Handle: RePEc:cem:jaecon:v:7:y:2004:n:1:p:99-135

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    References listed on IDEAS

    1. Eduardo Lora, 2001. "Structural Reforms in Latin America: What Has Been Reformed and How to Measure It," IDB Publications (Working Papers) 3338, Inter-American Development Bank.
    2. Cesar Martinelli & Mariano Tommasi, 1993. "Sequencing of Economic Reforms in the Presence of Political Constraints," UCLA Economics Working Papers 701, UCLA Department of Economics.
    3. Darren Lubotsky & Martin Wittenberg, 2006. "Interpretation of Regressions with Multiple Proxies," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 549-562, August.
    4. Fernandez-Arias, Eduardo & Montiel, Peter, 1997. "Reform and Growth in Latin America: All Pain, No Gain?," Working Papers 244236, Inter-American Development Bank.
    5. Eduardo Fern·ndez-Arias & Peter Montiel, 2001. "Reform and Growth in Latin America: All Pain, No Gain?," IMF Staff Papers, Palgrave Macmillan, vol. 48(3), pages 1-5.
    6. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications 4303, Inter-American Development Bank, Research Department.
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    More about this item


    structural reforms; political economy; Latin America;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection


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