Evaluating Economic Liberalization: Issues, Concepts and Approaches

Abstract

The early 1980s witnessed a profound change in attitude towards economic policy in developing countries. Increased oil prices, higher rates of interest, a slump in real commodity prices, significant reductions in private capital inflows, an associated international recession and reduced access to foreign markets each contributed to extremely serious balance of payments problems and other forms of macroeconomic instability in many developing countries. This imposed debilitating foreign exchange constraints and spiraling foreign debts and contributed to significant declines in overall economic performance. It also drove home the realization that fundamental and decisive policy interventions were required, manifested in World Bank structural adjustment policies (Greenaway and Morrissey, 1993). While donors such as the World Bank may not now engage in the types of adjustment programmes that were prevalent in the 1980s, economic policy reform is still an issue of great importance in developing (if not also developed) economies. In nearly all cases the types of economic reforms proposed and advocated are of the liberalizing type, measures to reduce government-induced distortions so as to render the economy more market-based, i.e. more responsive to market-determined price incentives. It is in this sense that we refer to economic liberalization.