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On the Speed of Economic Reform – A Tale of the Tortoise and the Hare: Evidence from Transition Countries

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  • Bruno Merlevede
  • Koen Schoors

Abstract

We analyse how the choice of reform speed, foreign direct investment (FDI) and economic growth affect one another. New reforms affect economic growth negatively, whereas the level of past reform leads to higher growth and attracts FDI. We simulate the impact of big bang and gradualist strategies on economic growth. This is only meaningful in the presence of reform reversals, which requires aggregate uncertainty about the appropriate reform. We find that even relatively small ex ante reversal probabilities suffice to tilt the balance in favour of gradualism. The case for gradualism gains strength if policymakers are short‐sighted, but weakens if voters are myopic.

Suggested Citation

  • Bruno Merlevede & Koen Schoors, 2007. "On the Speed of Economic Reform – A Tale of the Tortoise and the Hare: Evidence from Transition Countries," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 10(1), pages 29-50.
    • Handle: RePEc:taf:jecprf:v:10:y:2007:i:1:p:29-50
    DOI: 10.1080/17487870701213573
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    References listed on IDEAS

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    1. de Melo, Martha & Denizer, Cevdet & Gelb, Alan & Tenev, Stoyan, 1997. "Circumstance and choice : the role of initial conditions and policies in transition economies," Policy Research Working Paper Series 1866, The World Bank.
    2. Gérard Roland, 2004. "Transition and Economics: Politics, Markets, and Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 026268148x, April.
    3. Karsten Staehr, 2005. "Reforms and Economic Growth in Transition Economies: Complementarity, Sequencing and Speed," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 2(2), pages 177-202, December.
    4. Ms. Ratna Sahay & Mr. Jeromin Zettelmeyer & Mr. Eduardo Borensztein & Mr. Andrew Berg, 1999. "The Evolution of Output in Transition Economies: Explaining the Differences," IMF Working Papers 1999/073, International Monetary Fund.
    5. Lensink, R. & Morrissey, O., 2001. "Foreign direct investment: flows, volatility and growth in developing countries," Research Report 01E16, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    6. repec:dgr:rugsom:01e16 is not listed on IDEAS
    7. repec:zbw:bofitp:2003_001 is not listed on IDEAS
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    Cited by:

    1. Berggren, Niclas & Bergh, Andreas & Bjørnskov, Christian, 2012. "The growth effects of institutional instability," Journal of Institutional Economics, Cambridge University Press, vol. 8(2), pages 187-224, June.
    2. DELL'ANNO, Roberto & VILLA, Stefania, 2012. "Growth in Transition Countries: Big Bang versus Gradualism," CELPE Discussion Papers 122, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    3. Danai Christopoulou & Nikolaos Papageorgiadis & Chengang Wang & Georgios Magkonis, 2021. "IPR Law Protection and Enforcement and the Effect on Horizontal Productivity Spillovers from Inward FDI to Domestic Firms: A Meta-analysis," Management International Review, Springer, vol. 61(2), pages 235-266, April.
    4. Hassan Fereidouni Gholipour & Usama Al-mulali & Abdul Hakim Mohammed, 2014. "Foreign investments in real estate, economic growth and property prices: evidence from OECD countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 17(1), pages 33-45, March.
    5. Stefano Basilico & Nils Grashof, 2023. "The transition of brown regions: A matter of timing?," Jena Economics Research Papers 2023-003, Friedrich-Schiller-University Jena.
    6. Roberto Dell'Anno & Stefania Villa, 2013. "Growth in transition countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 21(3), pages 381-417, July.

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