Learning the Wealth of Nations

We study the evolution of market-oriented policies over time and across countries. We consider a model in which own and neighbors' past experiences influence policy choices, through their effect on policymakers' beliefs. We estimate the model using a large panel of countries. We find that there is a strong geographical component to learning, which is crucial to explain the slow adoption of liberal policies during the postwar period. Our model also predicts that there would be a substantial reversal to state intervention if nowadays the world was hit by a shock of the size of the Great Depression.