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In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance

  • Sharun Mukand
  • Dani Rodrik

We consider a model of policy choice in which appropriate policies depend on a country's own circumstances, but the presence of a successful leader generates an informational externality and results in too little 'policy experimentation.' Corrupt governments are reined in while honest governments are disciplined inefficiently. Our model yields distinct predictions about the patterns of policy imitation, corruption, and economic performance as a function of a country''s location vis-……-vis successful leaders. In particular, it predicts a U-shaped pattern in economic performance as we move away from the leader in the relevant space of characteristics: close neighbors should do very well, distant countries moderately well on average with considerable variance, and intermediate countries worst of all. An empirical test with the experience of post-socialist countries provides supportive results.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9134.

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Date of creation: Aug 2002
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Publication status: published as Mukand, Sharun W. and Dani Rodrik. "In Search Of The Holy Grail: Policy Convergence, Experimentation, And Economic Performance," American Economic Review, 2005, v95(1,Mar), 374-383.
Handle: RePEc:nbr:nberwo:9134
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