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International organizations and the political economy of reforms

Sebastian Galiani, Iván Torre () and Gustavo Torrens

Journal of International Economics, 2019, vol. 121, issue C

Abstract: We develop a simple dynamic model of policy reform that captures some of the determinants that underlie the differences between the reform paths taken by a number of countries since the early 1990s. The model focuses on the interaction between domestic institutions and international organizations that promote reform, on the one hand, and the political incentives for reversing reforms, on the other. At equilibrium, there are three types of reform paths. A country can undergo a full-scale, lasting reform, can carry out a partial but lasting reform, or can go through cycles of reforms and costly counter-reforms. Domestic institutions, along with the incentives provided by international organizations, determine the equilibrium path. A politically myopic international organization may induce cycles of reforms and costly counter-reforms, thereby reducing the country's well-being. An international organization that only provides funds to promote reforms may have a less beneficial effect than one that assists the country with fresh funds to defend reforms when there is a risk of reversal. International funds that promote reforms can also influence domestic institutions. For example, due to the intervention of an international organization, countries could have incentives to dismantle institutions that build up reversal cost and/or do not fully build their fiscal capacity.

Keywords: Structural reform; Counter-reform; International organizations (search for similar items in EconPapers)
JEL-codes: D72 F59 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:121:y:2019:i:c:s0022199619300674

DOI: 10.1016/j.jinteco.2019.07.004

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