This paper analyzes the structural response to liberalization and examines the political cost associated with the speed of liberalization in a popular democracy. In response to a given amount of liberalization, the endogenous accumulation of skills determines the extent of structural adjustment.
Mobility rises over time and thus completes the adjustment.
The results indicate that the speed of skill accumulation during transition determines the political preference over a big-bang approach versus a gradualist approach. In addition, the possibility exists for potential losers to be willing to subsidize the skill-accumulation process during the adjustment period.