Is the IMF right? How robust is the relationship between market-oriented institutions and policies and economic growth?

Nowadays it is widely believed that market-oriented reforms will foster economic development.1 For instance, the 2002 World Development Report of the World Bank was titled: Building Institutions for Markets. Market based institutions will, according to the World Bank (2002), transmit information efficiently, enforce property rights and contracts, and secure competition, which will all affect the incentives to participate in a market. At the same time, there are various studies concluding that democracy is also closely tied to economic growth.2

For instance, Sala-i-Martin (1997) and Sturm and De Haan (2005) conclude that respect for political rights and civil liberties is robustly related to economic growth.