Economic and Political Liberalizations

48 Pages Posted: 14 Jul 2004

See all articles by Francesco Giavazzi

Francesco Giavazzi

National Bureau of Economic Research (NBER); University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER); Centre for Economic Policy Research (CEPR)

Guido Tabellini

Bocconi University - Department of Economics; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

Multiple version iconThere are 3 versions of this paper

Date Written: July 2004

Abstract

This paper studies empirically the effects of and the interactions amongst economic and political liberalizations. Economic liberalizations are measured by a widely used indicator that captures the scope of the market in the economy, and in particular of policies towards freer international trade (cf. Sachs and Werner 1995, Wacziarg and Welch 2003). Political liberalizations correspond to the event of becoming a democracy. Using a difference-in-difference estimation, we ask what are the effects of liberalizations on economic performance, on macroeconomic policy and on structural policies. The main results concern the quantitative relevance of the feedback and interaction effects between the two kinds of reforms. First, we find positive feedback effects between economic and political reforms. The timing of events indicates that causality is more likely to run from political to economic liberalizations, rather than vice versa, but we cannot rule out feedback effects in both directions. Second, the sequence of reforms matters. Countries that first liberalize and then become democracies do much better than countries that pursue the opposite sequence, in almost all dimensions.

Suggested Citation

Giavazzi, Francesco and Giavazzi, Francesco and Tabellini, Guido, Economic and Political Liberalizations (July 2004). CESifo Working Paper Series No. 1249; IGIER Working Paper No. 264, Available at SSRN: https://ssrn.com/abstract=564503 or http://dx.doi.org/10.2139/ssrn.564503

Francesco Giavazzi

National Bureau of Economic Research (NBER)

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University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) ( email )

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Centre for Economic Policy Research (CEPR)

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Guido Tabellini (Contact Author)

Bocconi University - Department of Economics ( email )

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Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
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Italy

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

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