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

Between 1995 and 2007, the world’s economies embraced neoliberal reforms and prospered, a coincidence that is often taken as proof that liberal economies grow faster. A large body of econometric research shows that “freer” economies are more prosperous. I levy two methodological criticisms at this literature that ultimately render a very different picture of pro-market reforms’ relationship with growth. My analysis suggests that neoliberal reforms did not significantly affect growth where they did not ease public financing or encourage foreign investment. The evidence does not suggest that the economic prosperity of the past 20 years is due to economic liberalism per se, but rather the developing world enjoying stabilized macrofinancial systems and a global investment boom. Neoliberal reforms may have helped produce this stability and investment, but systemic financial stabilization was only one of several goals that they pursued. A sober interpretation of the data finds little evidence for believing that economies will prosper as they embrace laissez-faire ideals