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The interaction and sequencing of policy reforms

Listed author(s):
  • Asturias, Jose
  • Hur, Sewon
  • Kehoe, Timothy J.
  • Ruhl, Kim J.

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165188916300689
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 72 (2016)
Issue (Month): C ()
Pages: 45-66

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Handle: RePEc:eee:dyncon:v:72:y:2016:i:c:p:45-66
DOI: 10.1016/j.jedc.2016.05.006
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
  2. Francisco J. Buera & Joseph P. Kaboski & Yongseok Shin, 2011. "Finance and Development: A Tale of Two Sectors," American Economic Review, American Economic Association, vol. 101(5), pages 1964-2002, August.
  3. Sebastian Edwards, 1990. "The Sequencing of Economic Reform: Analytical Issues and Lessons from Latin American Experiences," The World Economy, Wiley Blackwell, vol. 13(1), pages 1-14, March.
  4. Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 285-315.
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  8. Nauro F. Campos & Abrizio Coricelli, 2002. "Growth in Transition: What We Know, What We Don't, and What We Should," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 793-836, September.
  9. Jang-Sup Shin, 2011. "Finance and Economic Development in China: An Introduction," Global Economic Review, Taylor & Francis Journals, vol. 40(2), pages 141-143.
  10. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  11. Michael Waugh & Ina Simonovska, 2012. "Different Trade Models, Different Trade Elasticities?," 2012 Meeting Papers 618, Society for Economic Dynamics.
  12. Timothy J. Kehoe & Felipe Meza, 2011. "Catch-up growth followed by stagnation: Mexico, 1950–2010," Working Papers 693, Federal Reserve Bank of Minneapolis.
  13. Timothy Kehoe & Sewon Hur & Kim Ruhl & Jose Asturias, 2016. "Firm Entry and Exit and Aggregate Growth," 2016 Meeting Papers 573, Society for Economic Dynamics.
  14. Bah, El-hadj & Fang, Lei, 2016. "Entry Costs, Financial Frictions, And Cross-Country Differences In Income And Tfp," Macroeconomic Dynamics, Cambridge University Press, vol. 20(04), pages 884-908, June.
  15. Timothy Kehoe & Felipe Meza, 2011. "Catch-up Growth Followed by Stagnation: Mexico 1950–2008," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 48(2), pages 227-268.
  16. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 767-796.
  17. Timothy J. Kehoe & David K. Levine, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 865-888.
  18. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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