External Environment, Globalization and Reform

Abstract:
In response to increased global economic integration in recent decades, some countries took measures to align domestic incentives with the external environment, while others only made partial adjustments with a considerable time lag. This paper attempts to explain why reactions to changes in the external environment have been so varied. It traces the evolution of the external environment, documents the pattern of responses to these changes, and reviews a number of competing explanations of reform variability. The paper also provides a comparative analysis of the reform experiences of Latin America and the Middle East over the last two decades. Finally, it suggests a set of hypotheses for further analysis of the link between reforms and the external environment.