Market reforms—policies designed to transition economies toward greater reliance on market forces—have been central to economic policy debates for decades. The late 20th century was full of market liberalizations, but research has produced conflicting findings about their effects on economic growth. Our research examines this question using data from the Fraser Institute’s Economic Freedom of the World index for 1950–2023.

The index measures the degree to which a country’s policies and institutions support economic freedom by aggregating information across five broad categories: the size of government, the legal system and property rights, sound money, freedom to trade internationally, and regulation of business, credit, and labor. This index is suited for studying market reforms because it captures both discrete policy changes, such as trade liberalization and privatization programs, and wider institutional shifts. We complemented the index with data from the International Monetary Fund’s Structural Reform Database, which provides more granular, sector-specific measures of reforms, including changes in product markets, labor markets, financial systems, and trade policies.

We 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. For context, the difference between highly regulated and relatively liberal economies is usually around three to four index points. Thus, a two-point increase typically corresponds to major policy overhauls, including large-scale trade liberalization, privatization programs, stabilization reforms, and significant reductions in regulatory barriers. The 30 reform episodes we identified span a range of institutional and political contexts, including the Balcerowicz Plan in Poland, the New Economic Policy of 1991 in India, and Rogernomics in New Zealand.

Our findings reveal that market reforms gradually accelerated growth in gross domestic product (GDP) per capita. There is little evidence of an immediate increase in growth; our estimates suggest near-zero effects or modest declines 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, and after 10–15 years, the cumulative effect on per capita GDP growth was substantial.

Our research also examines the effects of specific types of market reforms. Reforms related to trade and financial-sector liberalization tended to produce positive effects sooner, likely reflecting more immediate impacts on capital flows, market access, and price signals. In contrast, reforms involving privatization or broader institutional restructuring had more gradual effects, consistent with longer implementation horizons and more complex adjustment processes. However, the overarching pattern remains consistent across reform types: Short-run effects were modest, while long-run effects were large and positive.

This persistent upward trajectory of GDP per capita suggests that market reforms might operate through slow-moving channels. They may impose short-run adjustment costs by inducing the reallocation of labor and capital across sectors and toward more productive firms, temporarily disrupting production. But over time, market reforms can improve allocative efficiency and increase investment, thereby boosting productivity growth and output in the long run. Given this, institutional improvements may spur capital accumulation by raising expected returns and reducing policy uncertainty as well as enhance firm productivity through increased competition and innovation.

Overall, our findings show that market reforms can promote economic growth, but their benefits take time to materialize as capital and labor reallocate. Hence, our research reconciles conflicting findings from other studies and highlights the importance of a long-term horizon when evaluating reform outcomes. Policymakers may face political and economic pressure in the immediate aftermath of reforms, particularly if growth effects are not immediately visible. However, the long-run gains from market liberalization can be substantial. Policymakers should also consider that the timing and magnitude of reform effects likely depend on broader macroeconomic conditions, the quality of governance, and the sequencing of reforms. Future research could illuminate these factors and reveal the distributional consequences of reforms.

Note:
This research brief is based on Jonathan S. Hartley et al., “Do Market Reforms Cause Growth?,” Social Science Research Network, April 2026.