The Baker Hypothesis: Stabilization, Structural Reforms, and Economic Growth

In 1985, James A. Baker III's “Program for Sustained Growth” proposed a set of economic policy reforms including, inflation stabilization, trade liberalization, greater openness to foreign investment, and privatization, that he believed would lead faster growth in countries then known as the Third World, but now categorized emerging developing economies (EMDEs). A country-specific, time-series assessment reform process reveals three clear facts. First, ten-year period after stabilizing high inflation, average rate real GDP EMDEs is 2.6 percentage points higher than prior period. Second, corresponding increase liberalization episodes 2.66 points. Third, decade opening their capital markets equity spread between cost US declines by 240 basis The impact privatization less straightforward assess, taken together, central facts provide empirical support Hypothesis suggest simple neoclassical interpretation unprecedented has place since early 1990s.