The Interaction and Sequencing of Policy Reforms

42 Pages Posted: 12 Jan 2016 Last revised: 5 Sep 2021

See all articles by Jose Asturias

Jose Asturias

U.S. Census Bureau

Sewon Hur

Federal Reserve Bank of Dallas

Timothy J. Kehoe

University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Kim J. Ruhl

New York University (NYU), Leonard N. Stern School of Business - Department of Economics

Date Written: January 2016

Abstract

In what order should a developing country adopt policy reforms? Do some policies complement each other? Do others substitute for each other? To address these questions, we develop a two-country dynamic general equilibrium model with entry and exit of firms that are monopolistic competitors. The model includes barriers to entry of new firms, barriers to international trade, and barriers to contract enforcement. We find that the same reform can have very different effects on other economic outcomes, depending on the types of distortions present. In our model, we find that reforms to trade barriers and barriers to the entry of new firms are substitutable, as are reforms to contract enforcement and trade barriers. In contrast, we find that reforms to contract enforcement and the barriers to entry are complementary. Finally, the optimal sequence of reforms requires reforming trade barriers before contract enforcement.

Suggested Citation

Asturias, Jose and Hur, Sewon and Kehoe, Timothy J. and Ruhl, Kim Joseph, The Interaction and Sequencing of Policy Reforms (January 2016). NBER Working Paper No. w21840, Available at SSRN: https://ssrn.com/abstract=2713544

Jose Asturias (Contact Author)

U.S. Census Bureau ( email )

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Sewon Hur

Federal Reserve Bank of Dallas ( email )

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Timothy J. Kehoe

University of Minnesota - Twin Cities - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Kim Joseph Ruhl

New York University (NYU), Leonard N. Stern School of Business - Department of Economics ( email )

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