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On the Speed of Economic Reform - A Tale of the Tortoise and the Hare: Evidence from Transition Countries

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  • Bruno Merlevede
  • Koen Schoors

Abstract

We analyse how the choice of reform speed, foreign direct investment (FDI) and economic growth affect one another. New reforms affect economic growth negatively, whereas the level of past reform leads to higher growth and attracts FDI. We simulate the impact of big bang and gradualist strategies on economic growth. This is only meaningful in the presence of reform reversals, which requires aggregate uncertainty about the appropriate reform. We find that even relatively small ex ante reversal probabilities suffice to tilt the balance in favour of gradualism. The case for gradualism gains strength if policymakers are short-sighted, but weakens if voters are myopic.

Suggested Citation

  • Bruno Merlevede & Koen Schoors, 2007. "On the Speed of Economic Reform - A Tale of the Tortoise and the Hare: Evidence from Transition Countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 10(1), pages 29-50.
  • Handle: RePEc:taf:jpolrf:v:10:y:2007:i:1:p:29-50 DOI: 10.1080/17487870701213573
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    Cited by:

    1. Berggren, Niclas & Bergh, Andreas & Bjørnskov, Christian, 2012. "The growth effects of institutional instability," Journal of Institutional Economics, Cambridge University Press, pages 187-224.
    2. DELL'ANNO, Roberto & VILLA, Stefania, 2012. "Growth in Transition Countries: Big Bang versus Gradualism," CELPE Discussion Papers 122, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
    3. Hassan Fereidouni Gholipour & Usama Al-mulali & Abdul Hakim Mohammed, 2014. "Foreign investments in real estate, economic growth and property prices: evidence from OECD countries," Journal of Economic Policy Reform, Taylor & Francis Journals, pages 33-45.

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    Keywords

    Policy reform; gradualism; big bang; FDI; economic growth;

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