Do crises induce reform? Simple empirical tests of conventional wisdom

Allan Drazen, William Easterly

    Research output: Contribution to journalArticlepeer-review


    We find evidence for the crisis-induces-reform hypothesis at extreme values of the inflation rate and the black market premium. Episodes of extremely high inflation or black market premiums are followed by periods of better performance than episodes of moderately high inflation or black market premiums. We fail to find similar evidence of the crisis hypothesis when crisis is measured as a high current account deficit, a high budget deficit, or a negative per capita growth rate. The pattern of foreign aid disbursements may help explain the results. Foreign aid is reduced at extreme values of inflation or the black market premium, while it is actually increased for more extreme values of the current account deficit and the budget deficit.

    Original languageEnglish (US)
    Pages (from-to)129-157
    Number of pages29
    JournalEconomics and Politics
    Issue number2
    StatePublished - Jan 1 2001

    ASJC Scopus subject areas

    • Economics and Econometrics


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