Title
Reform reversals and output growth in transition economies Reform reversals and output growth in transition economies
Author
Faculty/Department
Faculty of Applied Economics
Publication type
article
Publication
Oxford ,
Subject
Economics
Source (journal)
The economics of transition / European Bank for Reconstruction and Development. - Oxford
Volume/pages
11(2003) :4 , p. 649-669
ISSN
0967-0750
1468-0351
ISI
000187462100003
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
This paper tests whether reform reversals during transition carry an economic cost. Reform is measured by an average reform index, while reform reversals are characterized by a drop in the average reform index. In the standard empirical framework the current level of reform affects growth negatively, while the lagged level affects growth positively. This non-linear effect implies a counterintuitive, short-lived positive effect of a reversal. In a simultaneous equation system with growth and the level of reform as dependent variables we explicitly introduce a reversal parameter. Empirical results suggest that reversals have an immediate negative impact on real output growth. Controlling for the level of reform shows that reversals are more costly at higher levels of reform.
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