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The politics of economic policy reform in developing countries

  • Adams, Richard H. Jr.

Because of politics, some economic policy reforms are adopted and pursued in the developing world, and others are delayed, and resisted. Economic reform is inherently a political act: It changes the distribution of benefits in society, benefiting some social groups, and hurting others. Social groups may oppose reform because of doubts about its benefits, or because they know it will harm their economic interests. The author shows how three types of reform - currency devaluation, the privatization of state enterprises, and the elimination of consumer (food) subsidies - affect the utility of nine different social groups (including international financial institutions). When governments try to privatize state-owned enterprises, for example, more social groups with greater political weight are likely to be disadvantaged than helped. Urban workers, urban bureaucrats, urban students, and the urban poor, are likely to"lose out"and will strongly oppose privatization. But the ruling elite, and urban politicians are also likely to at least partly resist privatization, fearing that such reform will reduce their economic"rents". More social groups, and power points thus oppose privatization than favor it, so this policy reform is likely to be delayed, or not implemented at all. However, social groups do not possess an absolute veto over economic reform, and policy reform can (and often does) occur, despite the opposition of certain social groups. It depends on the aggregate political weight of the groups opposing reform. For example, as the author shows, five social groups, either wholly or partly, oppose eliminating consumer (food) subsidies, but the combined weight of those groups is only roughly equal to the political weight of the four social groups - international financial institutions, the ruling elite, urban politicians, and urban capitalists - that favor this reform. Politically, consumer subsidies can be eliminated, or reduced, if the right kind of concern is shown for opposing social groups.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2443.

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Date of creation: 30 Sep 2000
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Handle: RePEc:wbk:wbrwps:2443
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  1. Allan Drazen & Vittorio Grilli, 1990. "The Benefits of Crises for Economic Reforms," NBER Working Papers 3527, National Bureau of Economic Research, Inc.
  2. Raul Labán & Federico Sturzenegger, 1994. "Distributional Conflict, Financial Adaptation And Delayed Stabilizations," Economics and Politics, Wiley Blackwell, vol. 6(3), pages 257-276, November.
  3. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
  4. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
  5. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 9-41, March.
  6. Rodrik, Dani, 1993. "The Positive Economics of Policy Reform," American Economic Review, American Economic Association, vol. 83(2), pages 356-61, May.
  7. Ali, Sonia M. & Adams, Richard Jr, 1996. "The Egyptian food subsidy system: Operation and effects on income distribution," World Development, Elsevier, vol. 24(11), pages 1777-1791, November.
  8. Gordon, David F., 1996. "Sustaining economic reform under political liberalization in Africa: Issues and implications," World Development, Elsevier, vol. 24(9), pages 1527-1537, September.
  9. Tuck, L. & Lindert, K., 1996. "From Universal Food Subsidies to a Self-Targeted Program: A Case Study in Tunisian Reform," World Bank - Discussion Papers 351, World Bank.
  10. Pedersen, Karl R, 1997. " The Political Economy of Distribution in Developing Countries: A Rent-Seeking Approach," Public Choice, Springer, vol. 91(3-4), pages 351-73, June.
  11. Bienen, Henry, 1990. "The Politics of Trade Liberalization in Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 38(4), pages 713-32, July.
  12. F. Rozwadowski & Siddharth Timari & David O. Robinson & Susan Schadler, 1993. "Economic Adjustment in Low-Income Countries; Experience Under the Enhanced Structural Adjustment Facility," IMF Occasional Papers 106, International Monetary Fund.
  13. Herbst, Jeffrey, 1990. "The structural adjustment of politics in Africa," World Development, Elsevier, vol. 18(7), pages 949-958, July.
  14. Radelet, Steven, 1992. "Reform without revolt: the political economy of economic reform in the Gambia," World Development, Elsevier, vol. 20(8), pages 1087-1099, August.
  15. Kimenyi, Mwangi S & Mbaku, John M, 1993. " Rent-Seeking and Institutional Stability in Developing Countries," Public Choice, Springer, vol. 77(2), pages 385-405, October.
  16. Hawkins, Jeffrey Jr., 1991. "Understanding the failure of IMF reform: The Zambian case," World Development, Elsevier, vol. 19(7), pages 839-849, July.
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