Assessing Economic Liberalization Episodes: A Synthetic Control Approach

We use a transparent statistical methodology for data-driven case studies---the synthetic control method---to investigate the impact of economic liberalization episodes on the pattern of real GDP per capita in a worldwide sample of countries. Economic liberalization is measured by a broadly defined and widely used indicator that captures the scope of the market in the economy, mainly in terms of openness to international markets. The applied methodology compares the post-liberalization GDP trajectory of treated (open) economies with the trajectory of a convex combination of similar but untreated (closed) economies, controlling for time-varying unobservables. We find that opening up the economy had a positive effect in most regions that we can analyze in our framework, but more recent liberalizations, in the 1990s and mainly in Africa, had no significant impact on income per capita.