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Reform from Within

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  • Aaron Tornell

Abstract

We present a model of endogenous institutional change that rationalizes reforms that have taken place in the context of economic crisis and drastic political change. Most of the reforms have been initiated by powerholders, even though they have ended worse off relative to the status quo. The first point we make is that reform is the tool used by some powerful groups to limit the power of their political opponents. The second point is that groups with common access' to the economy's resources find it individually rational to overappropriate resources. As a result the economy deteriorates. When the economy reaches a crisis conflict among groups erupts. Reform is the result of this conflict.

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  • Aaron Tornell, 1998. "Reform from Within," NBER Working Papers 6497, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6497
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    Cited by:

    1. Nauro Campos & Cheng Hsiao & Jeffrey Nugent, 2010. "Crises, What Crises? New Evidence on the Relative Roles of Political and Economic Crises in Begetting Reforms," Journal of Development Studies, Taylor & Francis Journals, vol. 46(10), pages 1670-1691.
    2. Gabriella Montinola & Ramon Moreno, 2001. "The political economy of foreign bank entry and its impact: theory and a case study," Pacific Basin Working Paper Series 2001-11, Federal Reserve Bank of San Francisco.
    3. Natasa Bilkic & Thomas Gries, 2014. "Uncertainty and Conflict Decision," Working Papers CIE 78, Paderborn University, CIE Center for International Economics.
    4. Falvey, Rod & Foster, Neil & Greenaway, David, 2012. "Trade Liberalization, Economic Crises, and Growth," World Development, Elsevier, vol. 40(11), pages 2177-2193.
    5. Christian Bellak & Markus Leibrecht, 2019. "The Association of Economic Crises and Investor-State Arbitration Cases," Department of Economics Working Papers wuwp284, Vienna University of Economics and Business, Department of Economics.
    6. Campos, Nauro & Hsiao, Cheng & Nugent, Jeffrey B, 2006. "Crises, What Crises?," CEPR Discussion Papers 5805, C.E.P.R. Discussion Papers.
    7. Roy, Martin, 2010. "Endowments, power, and democracy: Political economy of multilateral commitments on trade in services," WTO Staff Working Papers ERSD-2010-11, World Trade Organization (WTO), Economic Research and Statistics Division.
    8. Pushan Dutt & Devashish Mitra, 2008. "Inequality and the Instability of Polity and Policy," Economic Journal, Royal Economic Society, vol. 118(531), pages 1285-1314, August.
    9. Veldkamp, Laura, 2009. "Learning about reform: Time-varying support for structural adjustment," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 192-206, March.
    10. Wacziarg, Romain & Wallack, Jessica Seddon, 2004. "Trade liberalization and intersectoral labor movements," Journal of International Economics, Elsevier, vol. 64(2), pages 411-439, December.
    11. Drautzburg, Thorsten & Melnykovska, Inna & Schweickert, Rainer, 2008. "Which membership matters? External vs. internal determinants of institutional change in transition countries," Kiel Working Papers 1421, Kiel Institute for the World Economy (IfW Kiel).
    12. Bilkic, Natasa & Gries, Thomas, 2012. "When to Attack an Oppressive Government?," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62031, Verein für Socialpolitik / German Economic Association.
    13. Blomberg, S. Brock & Hess, Gregory D. & Weerapana, Akila, 2004. "Economic conditions and terrorism," European Journal of Political Economy, Elsevier, vol. 20(2), pages 463-478, June.
    14. Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2006. "How do trade and financial integration affect the relationship between growth and volatility?," Journal of International Economics, Elsevier, vol. 69(1), pages 176-202, June.
    15. Bowen, T. Renee & Anesi, Vincent, 2018. "Policy Experimentation, Redistribution and Voting Rules," CEPR Discussion Papers 12797, C.E.P.R. Discussion Papers.
    16. Abdul Abiad & Ashoka Mody, 2005. "Financial Reform: What Shakes It? What Shapes It?," American Economic Review, American Economic Association, vol. 95(1), pages 66-88, March.
    17. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," The World Bank Economic Review, World Bank, vol. 22(2), pages 187-231, June.
    18. Mauro Caselli, 2012. "Does wealth inequality reduce the gains from trade?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(2), pages 333-356, June.
    19. Robert Yarbrough, 2006. "Book Review: Thrainn Eggertsson. 2005. Imperfect Institutions: Possibilities and Limits of Reform. The University of Michigan Press, Ann Arbor, MI. vi + 272 pp. Cloth: $65.00; Paper: $27.95," Journal of Bioeconomics, Springer, vol. 8(1), pages 85-90, April.
    20. Hamza Bennani, 2015. "Dissecting the brains of central bankers: The case of the ECB’s Governing Council members on reforms," International Economics, CEPII research center, issue 141, pages 97-114.
    21. Agnello, Luca & Castro, Vitor & Jalles, João Tovar & Sousa, Ricardo M., 2015. "What determines the likelihood of structural reforms?," European Journal of Political Economy, Elsevier, vol. 37(C), pages 129-145.
    22. S. Brock Blomberg & Gregory D. Hess & Akila Weerapana, 2004. "An Economic Model of Terrorism," Conflict Management and Peace Science, Peace Science Society (International), vol. 21(1), pages 17-28, February.
    23. Witold J. Henisz & Bennet A. Zelner & Mauro F. Guillen, 2004. "International Coercion, Emulation and Policy Diffusion: Market-Oriented Infrastructure Reforms, 1977-1999," William Davidson Institute Working Papers Series 2004-713, William Davidson Institute at the University of Michigan.
    24. Kentaro Katayama, 2008. "Delay in Fiscal Reform," Microeconomics Working Papers 23075, East Asian Bureau of Economic Research.
    25. Alam Khan & Mario Estrada & Zarinah Yusof, 2016. "How terrorism affects the economic performance? The case of Pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(2), pages 867-883, March.

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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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