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The Role of the State in Economic Development


  • Guido Tabellini

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    • *  I am grateful to Francesco Giavazzi for several helpful discussions, to Andrew Feltenstein and participants in the IMF conference on the Middle East and Northern Africa (MENA) region on April 7, 8, 2004, Washington DC, for helpful comments, to Torsten Persson for sharing with me his data set on democratic institutions and economic development (Persson 2004), to Gaia Narciso for excellent research assistance, and to Bocconi University and the Canadian Institute for Advanced Research for financial support.


This paper discusses the recent literature on the role of the state in economic development. It concludes that government incentives to enact sound policies are key to economic success. It also discusses the evidence on what happens after episodes of economic and political liberalizations, asking whether political liberalizations strengthen government incentives to enact sound economic policies. The answer is mixed. Most episodes of economic liberalizations are indeed preceded by political liberalizations. But the countries that have done better are those that have managed to open up the economy first, and only later have liberalized their political system.