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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

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.

Suggested Citation

  • Cohen, Joseph N, 2010. "Neoliberalism’s relationship with economic growth in the developing world: Was it the power of the market or the resolution of financial crisis?," MPRA Paper 24399, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:24399
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    File URL: https://mpra.ub.uni-muenchen.de/24399/1/MPRA_paper_24399.pdf
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    References listed on IDEAS

    as
    1. Cohen, Joseph N, 2009. "Is “economic freedom” strictly free market capitalism? A decompositional analysis of the Economic Freedom of the World index," MPRA Paper 22437, University Library of Munich, Germany.
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    More about this item

    Keywords

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

    JEL classification:

    • P11 - Economic Systems - - Capitalist Systems - - - Planning, Coordination, and Reform
    • P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects
    • O21 - Economic Development, Innovation, 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, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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