DP8030 Learning the Wealth of Nations

Author(s): Francisco J Buera, Alexander Monge-Naranjo, Giorgio E Primiceri
Publication Date: September 2010
Keyword(s): beliefs, development, growth, market-oriented policy
JEL(s): O11, O43, P00
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8030

We study the evolution of market-oriented policies over time and across countries. We consider a model in which own and neighbors' past experiences influence policy choices through their effect on policymakers' beliefs. We estimate the model using a large panel of countries and find that it fits a large fraction of the policy choices observed in the postwar data, including the slow adoption of liberal policies. Our model also predicts that there would be reversals to state intervention if nowadays the world was hit by a shock of the size of the Great Depression.