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The interaction and sequencing of policy reforms

Author

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  • Asturias, Jose
  • Hur, Sewon
  • Kehoe, Timothy J.
  • Ruhl, Kim J.

Abstract

In what order should a developing country adopt policy reforms? Do some policies complement each other? Do others substitute for each other? To address these questions, we develop a two-country dynamic general equilibrium model with entry and exit of firms that are monopolistic competitors. Distortions in the model include barriers to entry of firms, barriers to international trade, and barriers to contract enforcement. We find that a reform that reduces one of these distortions has different effects depending on the other distortions present. In particular, reforms to trade barriers and barriers to the entry of new firms are substitutes, as are reforms to contract enforcement and trade barriers. In contrast, reforms to contract enforcement and the barriers to entry are complements. Finally, the optimal sequencing of reforms requires reforming trade barriers before contract enforcement.

Suggested Citation

  • Asturias, Jose & Hur, Sewon & Kehoe, Timothy J. & Ruhl, Kim J., 2016. "The interaction and sequencing of policy reforms," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 45-66.
  • Handle: RePEc:eee:dyncon:v:72:y:2016:i:c:p:45-66
    DOI: 10.1016/j.jedc.2016.05.006
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    Cited by:

    1. Jose Asturias & Sewon Hur & Timothy J. Kehoe & Kim J. Ruhl, 2015. "Firm Entry and Exit and Aggregate Growth," Working Papers 15-07, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Yan Bai & Keyu Jin & Dan Lu, 2019. "Misallocation Under Trade Liberalization," NBER Working Papers 26188, National Bureau of Economic Research, Inc.
    3. Jin, Keyu, 2019. "Misallocation Under Trade Liberalization," CEPR Discussion Papers 13976, C.E.P.R. Discussion Papers.
    4. Bernabe Lopez-Martin & David Perez-Reyna, 2018. "Contracts, Firm Dynamics and Aggregate Productivity," Documentos CEDE 016821, Universidad de los Andes - CEDE.
    5. Cacciatore, Matteo & Duval, Romain & Fiori, Giuseppe & Ghironi, Fabio, 2016. "Market reforms in the time of imbalance," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 69-93.
    6. Ferrari, Alessandro, 2020. "Losers amongst the losers: the welfare effects of the Great Recession across cohorts," Working Paper Series 2509, European Central Bank.
    7. Ivan Ajdukovic & Sylvain Max & Rodolphe Perchot & Eli Spiegelman, 2018. "The Economic Psychology of Gabriel Tarde: Something new for behavioral economics?," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 2(1), pages 5-11, March.
    8. Sewon Hur, 2018. "The Lost Generation of the Great Recession," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 179-202, October.
    9. Daniela Costa & Timothy J. Kehoe & Gajen Raveendranathan, 2016. "The Stages of Economic Growth Revisited, Part 2: Catching Up to and Joining the Economic Leader," Economic Policy Paper 16-6, Federal Reserve Bank of Minneapolis.

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    More about this item

    Keywords

    Sequencing reforms; Interaction of reforms; Trade barriers; Entry barriers; Contract enforcement;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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