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Neoliberalism’s relationship with economic growth in the developing world: Was it the power of the market or the resolution of financial crisis?

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  • Cohen, Joseph N
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    Abstract

    This 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 Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24399.

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    Date of creation: 15 Jul 2010
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    Handle: RePEc:pra:mprapa:24399

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    Keywords: economic freedom; neoliberalism; laissez faire; periodicity; economic growth; economic development; capitalism;

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    15. James Honaker & Gary King & Matthew Blackwell, . "Amelia II: A Program for Missing Data," Journal of Statistical Software, American Statistical Association, American Statistical Association, vol. 45(i07).
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