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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?

By Joseph N Cohen

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.

Topics: P11 - Planning, Coordination, and Reform, P17 - Performance and Prospects, O21 - Planning Models; Planning Policy, E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination, O4 - Economic Growth and Aggregate Productivity
Year: 2010
OAI identifier: oai:mpra.ub.uni-muenchen.de:24527

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