Economic Reform and Economic Performance: Evidence from 20 Developing Countries

Abstract

Does economic reform assist or retard growth? This article presents data on economic performance (aggregate and sectoral growth, inflation, investment and external account) for 20 countries. The data are classified on an annual basis according to the country's policy stance in that year – controlled economy, partially or fully liberalised. This approach allows both control-group and before-versus-after analyses which are combined with a review of growth regressions and an analysis of case study material on adjustment. The evidence suggests three hypotheses: first, countries with controlled economies have performed badly compared with those which have moved towards greater market orientation. Second, economic performance does not differ greatly between fully-fledged market economies and partially liberalised ones – partly as several countries have pursued liberalisation with or no improvement in performance. Third, given that there is little difference in manufacturing and agricultural growth between full and partial liberalisers yet overall growth is more rapid for the former, the additional growth must be in the service sector. These hypotheses suggest that the balance between state and market should be tilted more toward the market than is currently supported by international development agencies.