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Learning dynamics and support for economic reforms : why good news can be bad
 
Author:van Wijnbergen, Sweder; Willems, Tim; Collection Title:Policy Research working paper ; no. WPS 6973
Country:Latin America; Europe; China; Date Stored:2014/07/22
Document Date:2014/07/01Document Type:Policy Research Working Paper
SubTopics:Public Sector Corruption & Anticorruption Measures; Children and Youth; Economic Theory & Research; Knowledge for Development; Enterprise Development & ReformLanguage:English
Region:East Asia and Pacific; Europe and Central Asia; Latin America & CaribbeanReport Number:WPS6973
Volume No:1 of 1  

Summary: Support for economic reforms has often shown puzzling dynamics: many reforms that began successfully lost public support. This paper shows that learning dynamics can rationalize this paradox because the process of revealing reform outcomes is an example of sampling without replacement. This concept challenges the conventional wisdom that one should begin by revealing reform winners. It may also lead to situations in which reforms that enjoy both ex ante and ex post majority support will still not come to completion. The framework can be used to explain why gradual reforms worked well in China (where successes in Special Economic Zones facilitated further reform), whereas this was much less the case for Latin American and Central and Eastern European countries.

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