The interaction and sequencing of policy reforms

Jose Asturias, Sewon Hur, Timothy J. Kehoe, Kim J. Ruhl

Research output: Contribution to journalArticle

4 Scopus citations

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. Distortions in the model include barriers to entry of firms, barriers to international trade, and barriers to contract enforcement. We find that a reform that reduces one of these distortions has different effects depending on the other distortions present. In particular, reforms to trade barriers and barriers to the entry of new firms are substitutes, as are reforms to contract enforcement and trade barriers. In contrast, reforms to contract enforcement and the barriers to entry are complements. Finally, the optimal sequencing of reforms requires reforming trade barriers before contract enforcement.

Original languageEnglish (US)
Pages (from-to)45-66
Number of pages22
JournalJournal of Economic Dynamics and Control
Volume72
DOIs
StatePublished - Nov 1 2016

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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