Liberalizing, State Building, and Getting to Denmark: Analyzing Twenty-First Century Institutional Change

Abstract

This paper undertakes a descriptive analysis of changes in economic institutions across countries from 2000-2016, using Economic Freedom of the World and the “State Economic Modernity” index. This latter index is a recent creation, similar conceptually to state capacity, measuring what can variously be thought of as state building, effectiveness, and economic power. State Economic Modernity can also be thought of as the economic institutions associated with social democracy. These two indexes are used in concert with one another to classify countries into eight directions of institutional change. Despite recent pessimism, countries besides those at the top income bracket have continued to liberalize, while wealthy countries have merely stagnated. At the high level aggregates, there is little movement in “State Economic Modernity” over this period, although there is considerably heterogeneity among individual countries. Rwanda is the single country to make the greatest movement towards the development benchmark of “Getting to Denmark,” while, directionally, Democratic Republic of the Congo, Benin, Guinea-Bissau, and Indonesia have made significant positive movements as well.