NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance

Sharun Mukand, Dani Rodrik

NBER Working Paper No. 9134
Issued in August 2002
NBER Program(s):   IFM

We consider a model of policy choice in which appropriate policies depend on a country's own circumstances, but the presence of a successful leader generates an informational externality and results in too little 'policy experimentation.' Corrupt governments are reined in while honest governments are disciplined inefficiently. Our model yields distinct predictions about the patterns of policy imitation, corruption, and economic performance as a function of a country''s location vis-……-vis successful leaders. In particular, it predicts a U-shaped pattern in economic performance as we move away from the leader in the relevant space of characteristics: close neighbors should do very well, distant countries moderately well on average with considerable variance, and intermediate countries worst of all. An empirical test with the experience of post-socialist countries provides supportive results.

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Document Object Identifier (DOI): 10.3386/w9134

Published: Mukand, Sharun W. and Dani Rodrik. "In Search Of The Holy Grail: Policy Convergence, Experimentation, And Economic Performance," American Economic Review, 2005, v95(1,Mar), 374-383.

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