The Inverse Domino Effect: Are Economic Reforms Contagious?

KOF Working Papers No. 187

29 Pages Posted: 4 Mar 2008

See all articles by Martin Gassebner

Martin Gassebner

ETH Zurich - KOF Swiss Economic Institute; CESifo (Center for Economic Studies and Ifo Institute)

Noel Gaston

University of South Australia

Michael J. Lamla

ETH Zurich - KOF Swiss Economic Institute; University of Essex

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2008

Abstract

This paper examines whether a country's economic reforms are affected by reforms adopted by other countries. A simple model of economic reforms is developed to motivate the econometric work. Unsurprisingly, the model predicts that reforms are more likely when factors of production are internationally mobile and reforms are pursued in other economies. More interesting is the finding that reforms are not driven by greater trade openness. Using the change in the Index of Economic Freedom as the measure of market-liberalising reforms, we examine two issues. Using data for a panel of 144 countries and the years 1995-2006, we identify the most important channels through which reforms are transmitted from country to country. We find evidence of the importance of reforms in other countries. Moreover, consistent with our model, international trade is not a vehicle for the diffusion of economic reforms, rather the most important mechanism is geographical or cultural proximity.

Keywords: Economic reforms, economic freedom, resource flow models, spatial interdependence

JEL Classification: H71, H77, P51, O57

Suggested Citation

Gassebner, Martin and Gaston, Noel and Lamla, Michael J., The Inverse Domino Effect: Are Economic Reforms Contagious? (February 1, 2008). KOF Working Papers No. 187. Available at SSRN: https://ssrn.com/abstract=1100957 or http://dx.doi.org/10.2139/ssrn.1100957

Martin Gassebner

ETH Zurich - KOF Swiss Economic Institute ( email )

Weinbergstrasse 35
Zurich, 8092
Switzerland

HOME PAGE: http://www.kof.ethz.ch/chair/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Noel Gaston (Contact Author)

University of South Australia ( email )

37-44 North Terrace
Adelaide SA 5000, South Australia 5001
Australia

Michael J. Lamla

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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