Neoliberalism’s relationship with economic growth in the developing world: Was it the power of the market or the resolution of financial crisis?
AbstractThis article examines the relationship between "economic freedom" and economic growth. Previous studies have found a positive relationship between economic growth rates and "economic freedom", and used this relationship as a basis for arguing that more liberal economic policies promote development. "Economic freedom" conflates laissez-faire policy with other important concepts, like good governance and macroeconomic stability. When laissez-faire is parsed from these other concepts, it shows no positive relationship with growth outside of the early-1990s, a period in which financially-strained developing governments and financial systems enjoyed debt bailouts in exchange for liberalization reforms. Further analysis shows that laissez-faire exerts no discernible effect on economic growth net of the debt relief, inflation containment and improved inward investment that occurred after the Cold War. I argue that free market capitalism itself may not have promoted economic development in the post-Cold War era. Instead, free market reforms occurred alongside domestic and international political developments that helped developing countries resolve a serious financial crises, and that the resolution of these crises were most important in explaining the comparative prosperity of the 1990s and 2000s.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 24399.
Date of creation: 15 Jul 2010
Date of revision:
economic freedom; neoliberalism; laissez faire; periodicity; economic growth; economic development; capitalism;
Find related papers by JEL classification:
- P11 - Economic Systems - - Capitalist Systems - - - Planning, Coordination, and Reform
- P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects
- O21 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-21 (All new papers)
- NEP-FDG-2010-08-21 (Financial Development & Growth)
- NEP-HIS-2010-08-21 (Business, Economic & Financial History)
- NEP-PKE-2010-08-21 (Post Keynesian Economics)
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