Market oriented institutions and policies and economic growth : a critical survey

This paper surveys recent evidence suggesting that market-oriented institutions and policies are strongly related to economic growth, focusing on studies using the economic freedom indicator of the Fraser Institute. This index is critically discussed. Also various serious shortcomings of empirical studies using this index are identified. Nevertheless there are strong indications that liberalization, i.e. an increase in the economic freedom index, stimulates economic growth. The paper also reviews studies on the determinants of economic freedom. Political liberalization is often found to enhance economic liberalization, while there is less evidence for causality running in the other direction