A Tale of Two Reversals:
        Theory and Evidence on the Relationship between Financial Reform and Political Liberalization

        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)
 

        For the Essential Thatcher click here
 

        Request a PDF copy by e-mail
 
 
 
 

                                                                                                                                                 Back to Working Papers List