Studies Prove Capitalism Helped Latin America, While Socialism Failed It
“Socialism is an alternative to capitalism as potassium cyanide is an alternative to water.” -Ludwig von Mises
Two synthetic control studies, published in 2013 and 2020, give us new insight into the effects of left-populist and liberalization policies. Empirically measuring the effects of these policies on a country-wide scale can be very difficult without a great amount of statistical rigor. Rigorous systemic control methods can produce much more reliable counterfactuals.
Liberalization
The paper "Economic Liberalization Episodes: A Synthetic Control Approach. Review of Economics and Statistics"1 examines the effects of 30 liberalization experiments, with 5 being in Latin America. The study found a significant positive impact on income per capita in Barbados, Colombia, Costa Rica, and Mexico. The effects on Chile were difficult to measure in a synthetic control due to the rapid changes in policies during the Allende and Pinochet regimes.
The study overall found that economic liberalization episodes more often than not had a significant positive effect on real income per capita. At the very least, they had non-negative effects. This evidence is detrimental to those who oppose liberalization in the third world.
Left-populism
A more recent paper, "The economic consequences of durable left-populist regimes in Latin America"2 revealed that socialist regimes had the exact opposite effect on income. After producing synthetic models of Venezuala, Nicaragua, and Bolivia, the authors observe that "... these regimes reduced real per capita incomes by over 20%."
Absher, Samuel & Grier, Kevin & Grier, Robin. The economic consequences of durable left-populist regimes in Latin America. Journal of Economic Behavior & Organization (2020)
Billmeier, Andreas & Nannicini, Tommaso. Assessing Economic Liberalization Episodes: A Synthetic Control Approach. Review of Economics and Statistics (2011)
Very Cool!