Explaining Reform Deadlocks

24 Pages Posted: 1 Jun 2004

See all articles by Friedrich Heinemann

Friedrich Heinemann

ZEW – Leibniz Centre for European Economic Research; University of Heidelberg - Alfred Weber Institute for Economics

Date Written: 2004

Abstract

Countries are often slow to adjust their economic structures to new necessities although this reform reluctance is costly in terms of growth and employment. This paper analyses the relevant factors that block or foster economic reforms. Theoretical considerations show that there are at least three classes of potentially relevant factors: the objective need for reforms, political-economic issues and factors associated with limited rationality or rational ignorance. In the empirical analysis, a reform event is quantified as a significant change of the Economic Freedom of the World indicator within a five-year-period. This allows to run probit estimations for a large country panel starting in the 1970s where the probability of reform is explained by a number of proxies covering all three classes of potential factors. The results suggest that the initial extent of economic freedom and growth performance are empirically relevant factors. Furthermore, countries with an ageing population appear to behave less reform friendly.

Keywords: economic policy reforms, economic freedom, reform resistance, limited rationality

JEL Classification: E63, H00

Suggested Citation

Heinemann, Friedrich, Explaining Reform Deadlocks (2004). ZEW Discussion Paper No. 04-39, Available at SSRN: https://ssrn.com/abstract=553921 or http://dx.doi.org/10.2139/ssrn.553921

Friedrich Heinemann (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
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D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.zew.de

University of Heidelberg - Alfred Weber Institute for Economics ( email )

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Heidelberg, D-69117
Germany

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