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Uncertainty, Informational Spillovers and Policy Reform: A Gravity Model Approach

  • Jan Fidrmuc

    ()

  • Elira Karaja

    ()

Reforms often occur in waves, seemingly cascading from country to country. We argue that such reform waves can be driven by informational spillovers: uncertainty about the outcome of reform is reduced by learning from the experience of similar countries. We motivate this hypothesis with a simple theoretical model of informational spillovers and learning, and then test it empirically using an approach inspired by the gravity model. We find evidence of informational spillovers both with respect to both political and economic liberalization. While the previous literature has focused only on economic reform, we find that the spillovers are particularly important for political changes.

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Paper provided by Centre for Economic Development and Institutions(CEDI), Brunel University in its series CEDI Discussion Paper Series with number 13-04.

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Length: 22 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:edb:cedidp:13-04
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