A new article by Robin Grier and Kevin Grier on the causal effects of Washington Consensus reforms will be relevant to the seemingly never-ending Brazilian discussions between “neoliberals” and “developmentalists” regarding the best routes to economic growth.
The authors analyze the experiences of 141 countries between 1970 and 2015 which saw significant movement on the Fraser Institute’s Economic Freedom index, and conclude that there is “overwhelming evidence of a large short-run effect” of reform, and “mixed but substantial evidence for a significant long-run effect as well.”
Methodologically, the article stands out for employing case matching, which the authors claim avoids some of the problems of regression analysis. Partly as a consequence, the authors are quite attentive to the counterfactuals at the country level: their matching technique creates a control unit that is similar to the reforming country, enabling them to argue, for example, that “assuming an initial per-capita income of $6,000 and a baseline growth rate of 2,” the reforming country would have a per-capita income of $7,481 as opposed to $6,624 in the baseline case after five years of reform.
Brazil is one of the case studies, although its recorded jump in the Economic Freedom index (1.01, between 1985 and 1990) is – not unsurprisingly – much smaller than many of its South American peers, such as Bolivia (2.11), Chile (1.77), or Mexico (1.59). One also wonders how the subsequent trajectory of reform in Brazil influenced the results, given how much reform has been watered down over time, whether through fiscal backsliding or the weakening of regulatory agencies
The article leads one to wonder, though, about a broader counterfactual relevant to the Brazilian case: how do similar episodes of reform in a “developmental” direction perform? There may not be as many cases of developmentally-directed change to evaluate, especially in recent decades, but the article does not actively engage the argument that – even if they were fewer in number – some states that employed active developmentalist policies actually outperformed Washington Consensus reforms (HT: the comments section of this post). Finally, as a political scientist, my natural follow-up question is: what drove the reforms forward in some countries more than others? The authors find a number of determinants of the initiation of reform – (lagged) investment, economic freedom, regime type, and human capital. But this raises the deeper and more granular causal question of why Washington Consensus reforms moved forward in countries with higher scores on those variables, and whether (and why) some countries were able to sustain reform better than others. In sum, this is an intriguing piece of research that usefully moves the political economy conversation forward, while raising plenty of new questions for social scientists to explore.
Image: Freeimages.com
