The Success of Currency Reforms to End Great Inflations: An Empirical Analysis of 34 High Inflations

Abstract. The estimation of an ordered probit model for currency reforms attempting to end 31 hyperinflations and three huge inflations of the twentieth century shows that the introduction of an independent central bank and the adoption of a credibly fixed exchange rate are crucial for the success of a currency reform. In addition, currency reforms are demonstrated to be more difficult in centrally planned economies than in market economies.     

Economic reforms and human development: evidence from transition economies

Do market-oriented economic reforms result in higher levels of human well-being? This article studies the impact of macro-level institutional and infrastructure reforms on the economic, educational and health dimensions of human well-being among 25 transition economies. We use panel data econometrics based on the LSDVC technique to analyse the effects of market-oriented reforms on the human development index (HDI), as a measure of human well-being, from 1992 to 2007. The results show the complexity of reform impacts in transition countries. They show that institutional and economic reforms led to positive economic effect and significant impacts on other dimensions of human development. We find some positive economic impacts from infrastructure sectors reforms. However, not every reform measure appears to generate positive impacts. Large-scale privatizations show negative effects in health and economic outcomes. The overall results show the importance of the interaction among different reform measures and the combined effect of these on human development.     

Markets wanted: expectation overshooting in transition economies

This paper analyzes and compares individual beliefs about the effects of competition and the evolution of those beliefs over time in transition economies and experienced market economies. At the onset of transition, competition beliefs in transition countries are far more positive than in experienced market economies. Over time, this difference vanishes and competition beliefs converge. It is argued that overly optimistic competition beliefs in transition countries contributed to the possibility of implementing far-reaching pro-market reforms. It is shown that competition beliefs positively affect support for economic reform.     

Is there a “reform fatigue” in the euro area?

The absence of monetary policy within a currency union increases the need for structural reforms that make the participating economies more flexible. However, the absence of exchange rate risk with respect to the other members of the union may reduce the urgency for such reforms. A number of other considerations also suggest that theory is ambiguous about the impact of participating in a currency union on progress in structural reforms. This paper addresses this issue empirically for the euro area. The results suggest that reforms in the euro area seem to have decelerated following the introduction of the euro, but from a fast pace. The paper discusses a number of possible explanations, including “reform fatigue,” the absence of “market punishment,” and “good-times” complacency. Estimates from an empirical growth model suggest that the slowing of reforms may slow down annual output growth by up to 0.2%. However, the results are preliminary and depend on the area of reform considered. Furthermore, the reform dynamics may change with the euro area starting slowing at the end of 2007.     

The end of economic transition

The transition from plan to market was the largest natural experiment in economics ever. Now, 20 years from the start of transition, all former socialist countries are market economies at the middle stage of economic development, and convergence with neighbours, if not with the developed world, is largely achieved. With hindsight, it is clear that economists have spent too much time debating proper sequencing of reforms and the fine‐tuning of reform packages. At the same time, the magnitude of the output and consumption fall in some countries was vastly underestimated, while the benefits of reforms have taken longer to materialize than expected. Successful practitioners of reform praise perseverance during and after the initial setbacks and willingness to make political compromises. At the conclusion of the natural experiment, transition economics has all but vanished as an academic discipline, although it played a crucial role in the formation of modern political economics.     

Culture,democracy, and market reforms: Evidence from transition countries

Transition countries differed widely in the extent to which they implemented market reforms. This paper empirically investigates the role of culture as a potential determinant of market reform adoption among the post-socialist economies of Eastern Europe and Central Asia. I examine an unbalanced panel of up to 21 transition countries over the period 1989–2001 and estimate the relationship between different cultural typologies and the adoption of liberalizing reforms. I report that a sense of individualism and intolerance for unequal dispersion of power within societies are robustly associated with greater market reform efforts. Only limited evidence exists for the influence of other cultural attitudes.     

Potential economic reforms in North Korea: a dynamic general equilibrium model

We use a dynamic general equilibrium model to examine hypothetical market reforms in North Korea. We model partial reform, in which producers choose capital allocations across sectors, with the government still fixing total capital. We also consider two full market reform scenarios. In one, public infrastructure investment remains unchanged, while, in the other, it increases substantially. In all scenarios, we assume a closed economy and a constant military size. Our simulations show little hope for the North Korean economy without boosting infrastructure. Although all of the reforms raise consumption, only significant increases in infrastructure investment bring positive economic growth.     

Policy induced increases in private healthcare financing provide short-term relief of total healthcare expenditure growth: Evidence from OECD countries

Healthcare reforms have long been advocated as a cure to the increasing healthcare expenditures in advanced economies. Nevertheless, it has not been established whether a market solution via private financing, rather than public financing, curb aggregate healthcare expenditures. To our knowledge, this paper is the first that quantifies the impact of reforms that significantly increases (decreases) the private (public) share of healthcare financing on total healthcare expenditures relative to income in 20 OECD countries. Our reform measure is based on structural break testing of the private share of total expenditures, and verification using evidence of policy reforms. To quantify the effect of these reforms we apply Propensity Score Matching and Inverse Probability Weighted regression analysis. Over a 5-year evaluation period the reforms lead to an accumulated cost saving 0.45 percentage points of GDP. The yearly effects of the reforms are largest in the first years in the post-reform period and decreases in size as a function of time since the reform. Our findings suggest that the investigated healthcare reforms have a relatively short-lived effect on aggregate health spending relative to GDP. The findings are robust to various sensitivity tests.     

Governance–Based Analysis Of Regulation

This article surveys current literature on the developing nature of regulatory systems and regulatory reforms, attempts to place such arrangements in the pervasive context provided by public policy processes and institutions, and argues that an explanation of the 'governance of regulation' is crucial to an understanding of the strengths and weaknesses of regulatory practice. The article begins by defining the range of meanings of regulation, then goes on to emphasize the importance of the framework of governance within which regulatory policy and practice proceed. The location of regulatory reform in contemporary debates on state–market relations and related managerial reforms is examined. Reference to this framework highlights the significance of the public policy process through which regulatory policies must be delivered, and the key role within that framework of political categories of analysis. The article ends by considering the issue of 'policy transfer' between developed and developing economies, and the need for policy–relevant research into regulatory systems and policies in developing countries.     

The sequencing of reform policies in China's agricultural transition*

This paper provides evidence regarding gains due to agricultural market liberalization in China. We empirically identify the different effects that incentive and farm restructuring reforms and gradual market liberalization have on China's agricultural economy during its transition period. We find that average gains within the agricultural sector due to reforms that improved incentives and increased decision‐making authority of producers exceed gains due to market liberalization by a large margin. Our method of analyzing the effects of transition policies on economic performance can be generalized to other reform paths in other transition economies.     

Bad loans,soft budget constraints and the political economy of financial market reform in transition economies

Financial market imperfections and especially the bad debt problem are among the most important factors impeding economic restructuring in transition economies. This paper analyses the implications of non-performing loans for the lending policy of banks and for the ensuing allocation of credit. It is shown that a lending bias exists in favour of old debtors, which not only impedes structural change but may also counteract policies intended to harden budget constraints and to promote restructuring. The paper also discusses from a political economy perspective, why despite these negative implications financial market reforms were not pursued more forcefully in most countries.     

Constitutionalism and credibility in reforming economies1

There has been relatively little investigation of the effect of constitutional transformations on the economic transition in post‐communist countries. We develop a simple signalling model in which constitutionalism – a commitment to limit political power and provide judicial defence of basic rights – reinforces the credibility of pro‐market candidates’ electoral promises and boosts public support for economic reforms. These findings are tested using opinion poll data on public support for reform in Central and Eastern Europe, and in the former Soviet Union, in the 1990s. In a two‐stage procedure we show that public support for market reforms is higher in countries where incumbents have taken deliberate steps to increase political accountability and judicial independence. Public support also spurs actual economic reform.     

Money Talks: Moral Economies of Earning a Living in Neoliberal East Africa

Neoliberal restructuring has targeted not just the economy, but also polity, society and culture, in the name of creating capitalist market societies. The societal repercussions of neoliberal policy and reform in terms of moral economy remain understudied. This article seeks to address this gap by analysing moral economy characteristics and dynamics in neoliberalised communities, as perceived by traders in Uganda and sex workers in Kenya. The interview data reveal perceived drivers that contributed to a significant moral dominance of money, self-interest, short-termism, opportunism and pragmatism. Equally notable are a perceived (i) close interaction between political–economic and moral–economic dynamics, and (ii) significant impact of the political–economic structure on moral agency. Respondents primarily referred to material factors usually closely linked to neoliberal reform, as key drivers of local moral economies. We thus speak of a neoliberalisation of moral economies, itself part of the wider process of embedding and locking-in market society structures in the two countries. An improved political economy of moral economy can help keep track of this phenomenon.     

THE INVERSE DOMINO EFFECT: ARE ECONOMIC REFORMS CONTAGIOUS?*

This article examines whether a country's economic reforms are affected by reforms adopted by other countries. Our theoretical model predicts that reforms are more likely when factors of production are internationally mobile and reforms are pursued in other economies. Using the change in the Index of Economic Freedom as the measure of market‐liberalizing reforms and panel data (144 countries, 1995–2006), we test our model. We find evidence of the spillover of reforms. Moreover, consistent with our model, international trade is not a vehicle for the diffusion of economic reforms; rather the most important mechanism is geographical or cultural proximity.     

Adjustment,trade policy and investment slumps: evidence from east asia ∗

This paper presents a model of investment in five East Asian economies over the 1970s and 80s, paying particular attention to the impact of the policy reforms which have accompanied Structural Adjustment Programmes. A priori, the impact of trade reform on investment can be positive or negative; in practise, it is found to be negative.     

Innovation Systems,Institutional Change And The New Knowledge Market: Implications For Third World Agricultural Development

This paper uses a simplified version of classical information theory to improve understanding of the dynamic potential of innovation systems in developing countries with a special focus on issues of agricultural poverty. Using examples drawn from emergent knowledge markets in industrialised countries, the paper suggests that such an analytical approach focuses attention directly on the types of institutional reforms necessary to improve the effectiveness of Third World agricultural R&D. Contrast is made with more conventional approaches that take institutional structures as given and focus more on factors such as price regimes, policy weaknesses and political will. The paper argues that so great now are the problems in this area (particularly in Sub-Saharan Africa) that there is a clear need for institutional reform to accompany relevant technological changes. In the absence of such reform innovative (and hence economic) potential is likely to be compromised.     

Do rapid political and trade liberalizations increase corruption?

Corruption scandals seem to abound in countries that have undergone reform. However, there has been no study of whether different combinations of reforms cause an increase in corruption. Theory provides some guidance as to the direction of causality—on the one hand, reforms make politicians accountable to voters as well as introducing more competition, which should decrease corruption. On the other hand, reforms may not be credible, which provides for an incentive for corruption. This paper uses the numerous cases of political and economic liberalizations that occurred in the 1980s and 1990s to examine this issue. The findings are that undertaking both types of reforms in rapid succession leads to a decrease in corruption, while countries that liberalized more than 5 years after democratizing experienced an increase in corruption.     

The Impact of Competition and Trade Unions on Workplace Reform and Organisational and Technological Change

This article addresses two research questions, firstly to test the hypothesis that organisational and technological changes are more likely to occur in the traded goods sector, in the private sector relative to the public sector and in more competitive product markets. Secondly, to examine whether trade unions have a positive or negative effect on the implementation of different types of workplace reforms, and organisational and technological changes. The analysis supports the hypothesis that workplaces in the traded goods sector are more likely to implement organisational and technological changes. It also indicates that workplaces in the private sector are more likely to implement certain types of reforms, whereas workplaces in the public sector are more likely to implement others. However, this study does not provide conclusive evidence that competitive pressure in product markets increases the probability that a firm will implement each workplace reform mentioned in this study. The evidence on unions provides tentative support to the view that more unionised workplaces are less likely to implement the reforms in question.     

The Phasing of Fiscal Adjustments: What Works in Emerging Market Economies?

This paper investigates the political and economic determinants of successful fiscal adjustment in 25 emerging market economies from 1980 to 2001. The results show that large and back‐loaded fiscal adjustments have the highest likelihood of success. Fiscal consolidations based on expenditure cuts increase the probability of approaching and achieving fiscal sustainability but are insufficient to maintain it unless accompanied by revenue reforms. Adjustment episodes launched in countries where governments enjoy a parliamentary majority and do not face imminent elections, are found to be more successful. Fiscal consolidations undertaken under IMF‐supported programs also have a higher probability of success.     

The Impact of EMU Enlargement on Structural Reforms: A Political Economy Approach

This paper analyzes the setting of labor market reforms in the European Monetary Union (EMU), as a political compromise pressured by the lobbying of business interests and trade unions. Using a common agency model of lobbying, we model the impact of distorted and non-distorted Central Bank monetary policy on EMU member state incentives to reform its labor market. Paradoxically, a majority of citizens who do not support the reform can lead to an optimal level of reform. We also show that, in a context of EMU enlargement, inflationary policy generates a status quo if there is a majority of non-supporters. Surprisingly, inflationary policy enhances the reform if the share of non-supporters over supporters increases, and weakens it if this share decreases.