In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance

Posted: 9 Sep 2005

See all articles by Sharun Mukand

Sharun Mukand

Tufts University - Department of Economics

Dani Rodrik

Harvard University - Harvard Kennedy School (HKS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Abstract

We consider a model of policy choice in which appropriate policies depend on a country's own circumstances, but the presence of a successful leader generates an informational externality and results in too little "policy experimentation." Corrupt governments are reined in while honest governments are disciplined inefficiently. Our model yields distinct predictions about the patterns of policy imitation, corruption, and economic performance as a function of a country's location vis-a-vis successful leaders. In particular, it predicts a U-shaped pattern in economic performance as we move away from the leader in the relevant space of characteristics: close neighbors should do very well, distant countries moderately well on average with considerable variance, and intermediate countries worst of all. An empirical test with the experience of postsocialist countries provides supportive results.

Keywords: Institutions, economic growth, convergence

JEL Classification: O10, O40

Suggested Citation

Mukand, Sharun and Rodrik, Dani, In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance. American Economic Review, Vol. 95, No. 1, pp. 374-383(10), March 2005. Available at SSRN: https://ssrn.com/abstract=795328

Sharun Mukand (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-5476 (Phone)
617-627-3917 (Fax)

Dani Rodrik

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-9454 (Phone)
617-496-5747 (Fax)

HOME PAGE: http://www.ksg.harvard.edu/rodrik/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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