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

Joseph N Cohen

MPRA Paper from University Library of Munich, Germany

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.

Keywords: economic freedom; neoliberalism; laissez faire; periodicity; economic growth; economic development; capitalism (search for similar items in EconPapers)
JEL-codes: E61 O21 O4 P11 P17 (search for similar items in EconPapers)
Date: 2010-07-15
New Economics Papers: this item is included in nep-fdg, nep-his and nep-pke
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