Free Market Reforms Take Time to Pay Off

A recent analysis warns that evaluating the impact of free-market reforms too early can obscure their true effects.

The study used

data from the Fraser Institute’s Economic Freedom of the World index for 1950–2023 … [and] identified one reform episode in each of 30 countries by finding the shortest window over which its index score increased by two or more points.

The evidence

suggest[s] near-zero effects or modest declines [in GDP per capita] in the first few years following a reform. However, approximately 3–5 years after a reform, growth effects turned positive and increased steadily over time.

The timing varied somewhat by reform type:

[R]eforms related to trade and financial-sector liberalization tended to produce positive effects sooner … [while] reforms involving privatization or broader institutional restructuring had more gradual effects.

All things considered,

market reforms can promote economic growth, but their benefits take time to materialize as capital and labor reallocate. … [So while p]olicymakers may face political and economic pressure in the immediate aftermath of reforms, … the long-run gains from market liberalization can [still] be substantial.

Welcome news for Javier Milei, who took office about 2.5 years ago!