Title

The inverse domino effect: Are economic reforms contagious?

Date of this Version

2-1-2011

Document Type

Journal Article

Publication Details

Citation only.

Gassebner, M., Gaston, N., & Lamla, M. J. (2011). The inverse domino effect: Are economic reforms contagious? International economic review, 52(1), 183-200.

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2011 HERDC submission. FoR code: 140210

© Copyright by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association, 2011

ISSN

0020-6598

Abstract

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.

“Finally, you have broader considerations that might follow what you would call the ‘falling domino’ principle. You have a row of dominoes set up, you knock over the first one, and what will happen to the last one is the certainty that it will go over very quickly. So you could have a beginning of a disintegration that would have the most profound influences.”
Dwight D. Eisenhower, press conference, April 7, 1954
(http://www.nps.gov/archive/eise/quotes.htm.)

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This document has been peer reviewed.