Policy Credibility Scenario

Adopting a New Policy Model

The economy of the imaginary country of Economia has been performing poorly relative to its neighboring countries. All the countries in this imaginary region have similar populations, natural resource endowments, and geographic and climactic features. One factor that has distinguished Economia from its neigboring countries is economic policy. For the last twenty years Economia has pursued a policy of import substitution while its neighbors have promoted export-led growth.

Two prominent economists in Economia have been advocating a shift to policy promoting export-led growth. The first, Aside Btuma, is a highly respected university professor who has been a persistent critique of government policy for the last ten years. Btuma is a member of an ethnic minority in Economia, and his parents were immigrants from one of the neighboring countries. The second is Cazi Dhaga, who served in the previous president's administration and was widely recognized as a highly intelligent economist and a superb administrator. After the last election Dhaga left the government to manage his family's long-established business.

After interviewing both Btuma and Dhaga, the President of Economia decides to appoint Dhaga to implement a new export-oriented economic policy. For the past five years each of the neighboring countries have been experiencing net capital inflows of three billion dollars, almost all of which has gone into investment in export industries. Given the similarity of Economia to its neighbors, the President announces that successful implementation of the new economic policy will rapidly lead to foreign investment of about three billion dollars per year in Economia's export industries.

Such an inflow of foreign investment depends on both domestic and foreign investors belief that the new economic policy will be sustained for a long period of time. Suppose you were a domestic investor considering whether you should expend resources to pursue a joint venture with a foreign partner in an export industry. How would you assess the likelihood that the new economic policy will be sustained, i.e. its credibility? Click on the button corresponding to your choice.

Highly Credible
Probably Credible
Somewhat Credible
Doubtfully Credible
Not-at-all Credible

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