The effects of crises on economic freedom and market-oriented reforms: a survey

Deep economic and financial crises are frequently thought to trigger major changes of the institutional environment conducive to economic freedom. This chapter examines the various foundations underlying the notion that crises and subsequent market-oriented reforms are closely interconnected. Theoretical investigations indicate that multiple factors influence the manner in which crises affect economic freedom, and that the policy responses to a crisis are contingent upon the political and institutional context. A survey of available empirical evidence on the consequences of economic and financial crises for economic freedom, conducted in this chapter suggests that the notion of a direct and positive influence of crises on economic liberalization is overly simplistic. Given the inconclusive and sometimes contradictory theoretical findings, it is not surprising that the results from existing empirical research, as reviewed in this chapter, are also diverse and inconclusive.