with Fabrizio Coricelli
June 2008
Although the relationship between economic and political liberalization
has received a great deal of attention lately,
one crucially important aspect has been largely neglected: the role of
reform reversals. Reversals define the trajectory
of political and economic liberalizations and, more importantly, they define
their joint dynamics as their relationship is
intrinsically non-linear. In this paper, we construct a simple model which
throws light on the conditions under which a
country falls into a “reversals trap” (i.e., a situation in which political
and economic liberalization reversals reinforce each
other). We then provide robust empirical support for this oft-neglected
stylised fact. We put forward econometric
evidence for this U-shaped relationship across countries, over time as
well as in a panel setting using a wide range of
political and of financial reform measures.
For presentation at the 15th World Congress
of the International Economics Association (June 25-29, Istambul)
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