# Liberal Development Economics and the Persistence of Sovereignty **URL:** **By** Sarah Thomas **Published:** August 5, 2026 --- Economists Dambisa Moyo and William Easterly argue that liberal institutions and incentives, beyond foreign aid and capital investment, create the conditions for economic growth. But many Global South states have been reluctant to fully adopt these. This essay presents Moyo’s and Easterly’s ideas, and it situates them in relation to postcolonial states’ priority of national sovereignty and regional federation, rooted in equality, over an economic liberalism that spanned the globe and was associated with colonialism. According to macroeconomist Dambisa Moyo, billions of dollars in foreign aid have flowed to Africa yet failed to drive noticeable growth. Aid continues to pour in, though its glamorization conceals that it has failed to deliver. Many nations that receive aid, largely in Africa, suffer from entrenched corruption, centralization, and weak institutions, so they are unable to make the most of aid to drive growth. [Economic growth](https://www.libertarianism.org/encyclopedia/development-economic) is the talisman of nations. As development economist William Easterly notes, “The theme of the quest is ancient.”[1](#_edn1) Growth is vital for increasing living standards and eliminating poverty, disease, and famine. But the desire for growth, while perennial, has increased exponentially in the last century. Indeed, Daniel Susskind notes that postwar governments universally declared GDP growth to be the highest good, persisting today.[2](#_edn2) The question of growth becomes complex, however, when looking to contexts where growth has failed, despite the best efforts of aid, capital investment, and education—largely in the Global South. That said, it’s important to note that most people no longer live in destitution, though these nations are still relatively poor. History reveals no elixir for growth that applies in all contexts, Easterly argues. Still, a liberal perspective focused on institutions can create the conditions for growth. But it must recognize the cultural importance of sovereignty in the Global South’s lack of sustained growth. The ideas of Easterly together with Moyo provide the way forward. Both scholars write from a liberal outlook and compellingly synthesize economics with experience at the World Bank, a key institution in development. Liberal development economics often assumes that institutions like the [rule of law](https://www.libertarianism.org/encyclopedia/rule-law), [property rights](https://www.libertarianism.org/encyclopedia/private-property), and [contract enforcement](https://www.libertarianism.org/encyclopedia/voluntary-contract-enforcement) are universally desirable goods that the Global South has yet to fully realize to attain growth. However, postcolonial nationalists tended to view these institutions from the perspective of their recent independence. Rather than valorizing liberal institutions in the abstract, they sought to dismantle colonial economic structures and chart a path to growth that was unique to individual national identities. Even when anticolonial thinkers supported federations that went beyond sovereignty, they still opposed this political form to a liberal integration in the global economy, as they associated capitalism with colonialism and saw both as characterized by domination. But the association of capitalism with colonialism is disproved by many liberal thinkers, including [F. A. Hayek](https://www.libertarianism.org/encyclopedia/hayek-friedrich) and [Ludwig von Mises](https://www.libertarianism.org/encyclopedia/mises-ludwig-von). Colonialism often undermined property rights and voluntary market exchange, instead seeking profit through conquest, centralized rule, and extraction. Nevertheless, when classical liberals consider obstacles to growth in the Global South, it is essential to appreciate the perception that capitalism and liberal institutions are still associated with extractive colonial practice. Further, a political priority of national sovereignty has prevailed historically among both elites and the people, often sidelining the development of liberal market institutions. While policymakers in the developing world may have recognized the value of institutions, they also perceived them as instruments to be balanced against sovereignty, rather than as inviolable foundations of economic order. Additionally, the incentives that postcolonial policymakers had were different, centered on national self-determination and regional federation to drive redistribution, which they saw as vital for an egalitarian form of economic growth. ### The Importance of Institutions The subject of how economies in low- and middle-income nations grow has occupied development economists for decades. All nations esteem growth, but it is seldom understood. Moyo does not define growth_,_ though the implication is an increase in GDP. But other definitions exist, such as an increase in the employment rate. Easterly defines growth in _The Elusive Quest for Growth _as the idea that each person’s living standards should continually increase.[3](#_edn3) Interspersing accounts of extreme poverty in the developing world, he rightly demonstrates how growth is acutely needed to uplift the global poor. As a way forward, both Easterly and Moyo stress the role of institutions over foreign aid. This has come to define liberal development economics, seen most recently in Daron Acemoglu and James A. Robinson’s _Why Nations Fail_ (2012). Institutions are also central to development economics in its foundations. Amartya Sen notably emphasized institutions through the lens of [freedom](https://www.libertarianism.org/columns/capabilities-approach-libertarianism). “Not only do institutions contribute to our freedoms,” he argues, “their roles can be sensibly evaluated in the light of their contributions to our freedom.”[4](#_edn4) Sen positively appraises [markets](https://www.libertarianism.org/encyclopedia/free-market-economy), and he contends that the problems people identify with them usually arise from other sources. Sen also notes the interconnection of economic need and political freedom, and, like Moyo, elevates the institutions of deliberative democracy. That said, unlike Moyo’s and Easterly’s liberal focus, Sen underscores [positive liberty](https://www.libertarianism.org/encyclopedia/positive-liberty) through an extensive state role. Another economist, Douglass North, well-known for his contributions to “New Institutional Economics,” similarly places institutions or “the rules of the game in a society” at the center of shaping economic behavior.[5](#_edn5) Unlike standard accounts that prioritize natural resources, capital investment, or culture, North focuses on institutions. These include formal institutions like constitutions and laws, as well as informal institutions like customs, property rights, and contracts.[6](#_edn6) Like Easterly, North additionally discerns how institutions “structure incentives in human exchange.”[7](#_edn7) If a society rewards innovation through its institutions, then growth is more likely to occur. Moyo and Easterly extend this primacy of institutions in their work on economic growth. Moyo centers the importance of “strong and trustworthy institutions,”[8](#_edn8) and notes as an example “the unquestionable importance of political stability and credible institutions” central to Japan’s rise.[9](#_edn9) She also argues for reconfiguring the institutions of democratic capitalism with an eye to the long-term. Liberal democracies must overcome their short-term bias, seen prominently in the election system, which incentivizes politicians to focus on immediate democratic passions to gain votes. This reform would drive a future-oriented vision of economic growth and democratic vitality. Central to Moyo’s thinking in _Edge of Chaos_ is the unity of political and economic considerations. Democratic capitalism was in retreat when Moyo was writing in 2018, with the Chinese model of state capitalism—a market economy combined with strong state control—continuing to present a formidable challenge to the Washington Consensus, though China had been operating in this mode for quite some time. In response to a “great unraveling of [globalization](https://www.libertarianism.org/encyclopedia/globalization)” through what Moyo identified as Brexit and the 2016 US presidential election,[10](#_edn10) she sought to promote a purer globalization. The reigning form was largely a partial globalization whose autarkic elements failed to drive maximum growth. That said, Moyo remains realistic: neither nonexistent globalization nor pure globalization can exist. Like many development economists, Moyo stresses the link between economic growth and democratic institutions. The economic prosperity of a nation drives the longevity of democratic order. But [democracy](https://www.libertarianism.org/encyclopedia/democracy) can only take hold once a stable middle class exists, one that can hold government accountable. Moyo recognizes that a totalizing commitment to democracy before sufficient growth has been attained “runs the risk of creating illiberal democracies that can be as bad—or worse—than the authoritarian systems they replaced.”[11](#_edn11) That said, the Chinese model proves unique. Despite high levels of economic growth, China is not a liberal democracy. Even if the autocratic elements in China’s economy produce growth, however, only time will tell if this economic activity generates sustained prosperity. China’s centralized investment in housing has, for example, outpaced demand, resulting in millions of unoccupied apartments and ghost cities. But China continues to rise elsewhere despite its non-liberal institutions. Emerging markets are moving away from American and toward Chinese investment, seen in China’s commitment to foreign direct investment (FDI) in infrastructure, energy, and manufacturing across Africa. Except for China, then, institutions seem to matter for growth. Like Moyo, Easterly similarly puts the focus on institutions like “rule of law, democracy, independent central banks, \[and\] independent finance ministers.”[12](#_edn12) Easterly’s acceptance of central banks might contrast, however, with liberal concerns that central banks distort incentives, reduce competition, and encourage risky behavior.[13](#_edn13) Furthermore, to his suggested institutions, the postcolonial critique might note that the right political incentives were not in place. This was due largely to the anticolonial desire to be liberated from Western hegemony, symbolized by institutions not seen as politically neutral. Easterly extends his account of institutions by discussing [corruption](https://www.libertarianism.org/encyclopedia/corruption) in developing nations, as the data show that institutional quality strongly affects the extent of government corruption. As a way forward, he cites four institutional elements (mentioned in the International Credit Risk Guide) that can reduce corruption: “rule of law, quality of bureaucracy, freedom from government repudiation of contracts, and freedom from expropriation.”[14](#_edn14) There is a lacuna in development economics regarding corruption, Easterly notes. The _Handbook of Development Economics_ does not mention corruption, while Bretton Woods institutions like the International Monetary Fund (IMF) and World Bank long ignored it, only recently engaging through the euphemism “problems with governance.” Easterly identifies two kinds of corruption, decentralized and centralized, with the decentralized kind being more harmful to the economy. Many of the Global South nations that have failed to grow significantly, or even regressed in growth, suffer from weak institutions and a lack of cultural commitment to the rule of law. This drives corruption, often in African nations. Sovereigns claim foreign aid for their personal purposes, rather than distribute to those in the nation who need it most. Indeed, Moyo with Easterly finds the legal frameworks in many African nations lack transparency due in part to widespread corruption. Government corruption aside, however, Easterly still identifies a role for state action to drive growth, rooted in the concept of “knowledge leaks.” The claim is that knowledge has a spillover effect that drives social increasing returns, rather than private increasing returns. This means that market incentives to create knowledge will be weak, so Easterly argues that the state must provide incentives instead. Government subsidies can drive a virtuous cycle of knowledge leaks through supporting research and development. Nevertheless, Easterly cautions against placing too much faith in the state to drive development, given the reality of factions—and, one might add, the [knowledge problem](https://www.libertarianism.org/videos/hayeks-insights-economic-development), that central planning cannot respond efficiently to market demands. Crucially, Easterly distinguishes between a weak central government comprised of polarized factions and a strong central government comprised of supporters in consensus. When a government has polarized factions, these often drive low economic growth arising from state policy, largely because of policy instability and conflict over distribution. Easterly grounds his ideas in economic history, surveying the different models of growth on offer. First, the Harrod-Domar model posited that investment in machinery or capital drives growth. But according to Easterly, this “financing gap approach” failed to grasp the power of incentives. Next, the Rostow model was an investment-led approach focused on aid that would drive the “takeoff into self-sustained growth.”[15](#_edn15) Here, too, Easterly and Moyo argue for laying to rest the aid-financed investment model, which has failed to generate long-term growth through sustainable local institutions. Lastly, Easterly turns to the Solow-Swan model, seen as the most recent and compelling. Robert Solow argued that technological progress, not capital investment, drives growth in the long run. Its contrary, capital fundamentalism, or “the belief that increasing buildings and machinery is the fundamental determinant of growth,”[16](#_edn16) was incompatible with incentives. But Bretton Woods institutions prize capital fundamentalism, despite its proven record of diminishing returns and absence of sustained growth in production. Given a fixed input to production, the supply of labor, Solow’s model concludes that only technological progress can circumvent diminishing returns. Despite the Solow-Swan model’s proven explanatory power, foreign aid continues to appeal to international financial institutions, possibly for public choice reasons. Ideally, Easterly notes, aid would drive investment, and investment would drive growth. However, in the prominent case of Africa, this has failed—precisely Moyo’s focus. Defining foreign aid as “the sum total of both concessional loans and grants,”[17](#_edn17) Moyo proposes a multifaceted approach that moves beyond the standard, US-driven approach to aid. Moyo advocates “an array of financing alternatives: trade, FDI, the capital markets, remittances, micro-finance and savings.”[18](#_edn18) While not rejecting aid, she argues that aid should be phased out ultimately to enable Africans’ self-sufficiency. African governments need to grasp the power of capital markets, in particular. Capital markets offer “better reputation, transparency, greater investment capital, \[and\] longer-term reduction in borrowing costs.”[19](#_edn19) Microfinancing also plays a role, and Moyo draws on compelling examples to advance its case. But microfinance, first pioneered by Nobel economist Muhammad Yunus and widely popularized, has since come under criticism. Reporting on recent research, Gabriele Steinhauser in the _Wall Street Journal_ notes microfinance’s insignificant impact on borrowers’ economic situation while enriching lenders’ loan portfolios, many of whom became for-profit.[20](#_edn20) Moyo further contests foreign aid in relation to democracy—another talisman of nations. “The real question to ask is, has the insertion of democracy via foreign aid economically benefited Africa?”[21](#_edn21) The answer is unclear. Democratic nations in Africa struggle with growth, while undemocratic nations have seen unprecedented growth. From this observation, Moyo contends that economic growth is a condition for democracy—not the other way around—yet that growth does not need aid. This reiterates her point that a strong middle class must first exist before procedural democracy can be implemented. For Moyo, there must be a way to achieve growth and eventually democratize, without aid. That African nations have failed to democratize despite significant aid is tied largely to the corruption of their institutions. Supported by aid, corrupt government officials foster yet more corruption, which drives a vicious cycle of aid. Furthermore, an unyielding pressure to lend exists at the World Bank, in the business of aid, and its lending scheme undervalues conditions. By contrast, Easterly proposes instead to base aid on past performance, rather than on future promises, and rejects debt forgiveness. ### The Persistence of Sovereignty Moyo and Easterly see liberal institutions and incentives as important conditions for long-term growth. This primacy of institutions is not new to development economics but foundational to key figures, including Sen and North. That said, how are we to assess the relative failure of the Global South to grow, despite liberalism’s seeming universality? Advocates of liberalism portray its institutions as universal, though Easterly’s realism sees no elixir for growth. But postcolonial policymakers consciously prioritized national self-determination often allied with redistribution. An egalitarian vision of sovereignty took priority over an expansive liberalism, indeed seen as vital for growth. Path dependence, or the lasting influence of colonial institutions, also impacted these societies’ development. The effects of colonial law can remain in societies and drive down development, seen in Sub-Saharan Africa. This is complicated, too, by neocolonialism. Kwame Nkrumah, a Ghanaian anticolonial thinker, defined neocolonialism as a condition where “external actors exploited the economic dependence that outlived alien rule.”[22](#_edn22) That dynamic drove concerns of unequal integration in the global economy, which remain today. Though nations continue to receive aid, it could be seen as promoting neocolonialism through economic dependence. Very few nations in the Global South fully embraced economic liberalization, especially in the immediate post-independence period. Instead, many states developed programs of economic nationalism, though partial liberal elements emerged in later decades. There is a historical reason for this: economic nationalism was initially seen as emancipatory, freeing new postcolonial states from Western colonial economic structures. For these states, economic policy was thus linked to sovereignty. As such, many postcolonial thinkers saw sovereignty and egalitarian economic growth as inherently related, which drove a skepticism toward _laissez-faire_ economic liberalism within the global economy. Thinkers like Eric Williams and Nkrumah also emphasized regional federations with a strong center. As Adom Getachew notes, Black Atlantic federalists’ “search for political institutions that could address economic underdevelopment and redistribution prompted their embrace of centralization.”[23](#_edn23) But the sovereignty of individual African states, even with a strong federation, was still essential for driving emancipation from neocolonialism and creating a world order of non-domination. Ideas from Marxism and communism further had an impact on Africa in the 1960s, prevailing over liberal ideas. In the vacuum left by departing European powers, the Soviet Union exerted a strong influence in Africa driven by strategic Cold War interests. The Soviets supported liberation movements and aligned socialist governments, in addition to providing economic aid, military assistance, and educational opportunities for African students in Soviet universities. Given Soviet influence, African nations negatively associated capitalism with colonialism, rejecting both as they pursued independence—a dynamic that persists today in parts of the continent. Anticolonial thinkers sought a critical distance from liberal integration in the global economy, which they regarded as “a site of domination and dependence against which nationalists should ultimately aim to secure national and regional independence.”[24](#_edn24) Even in internationalist proposals like the New International Economic Order, the aspiration was an egalitarian order of redistribution rather than liberalism, founded on “an independent self-reliant postcolonial citizen and a self-reliant national community”[25](#_edn25) that revealed a deep concern about “entrapment” within the global economy.[26](#_edn26) This nationalist and interventionist dynamic endures. Recent examples include India’s promotion of domestic manufacturing through “Make in India” programs, as well as Indonesia’s restrictions on exports of raw minerals to encourage domestic production. But, as Easterly maintains, “the evidence tells us that governments that mess around too drastically with free markets and [macroeconomic](https://www.libertarianism.org/columns/microeconomics-vs-macroeconomics-whats-real-difference) stability, whether in trade, foreign exchange, banking, budget deficits, or inflation, will have lower growth.”[27](#_edn27) The persistence of state intervention in postcolonial economies, despite strong arguments for economic liberalism, suggests that these policymakers had other incentives. This is especially so considering the political goal of sovereignty, informed by experiences of unequal integration. Indeed, many postcolonial states did the opposite of what most economists would recommend, especially in the decades immediately following independence. For instance, Easterly enjoins governments to avoid the following actions that create poor incentives for growth: “high inflation, high black market premiums, high budget deficits, strongly negative real interest rates, restrictions on [free trade](https://www.libertarianism.org/free-trade-collection), excessive red tape, and inadequate public services.”[28](#_edn28) On the contrary, high inflation was common in nations with weak tax systems, commodity price shocks, or rapid infrastructure spending, seen prominently in Ghana. Meanwhile, high black-market premiums resulted when governments created price controls or exchange controls, as an underground market traded foreign currency at a higher value. Many postcolonial governments, further, inherited weak administrative structures and tax bases, so they accumulated high budget deficits to compensate. And with respect to trade, protectionism prevailed during decolonization, in part because free trade with its international division of labor was associated with Western hegemony and thought to keep colonies underdeveloped. In turn, these states sought to protect domestic industries, even if this generated lower growth. Yet while liberal development economists might criticize these policies for being inefficient and averse to growth, postcolonial thinkers might argue that they were essential for achieving national self-determination. That said, there is no historical dichotomy. Some postcolonial states, like South Korea and Singapore, combined liberal, export-oriented policies with interventionist policies, successful in avoiding extended macroeconomic instability. Therefore, there is a duality to Easterly’s caution against regarding government as a “beneficent agent that we could advise on how to benefit the public weal.”[29](#_edn29) In every age, governments can be corrupt, as both Easterly and Moyo illustrate. This knowledge should give us pause from relying on the state to intervene on behalf of growth. But in some postcolonial states, state-led industrial policy combined with market-oriented reforms achieved growth—though we cannot determine how much more growth would have been possible with less industrial policy. We can conclude, with Easterly, that there is no single elixir for growth, though liberal institutions have proven effective in many contexts. And the question of growth cannot be isolated from the cultural legacy of colonialism in the Global South, as well as the persisting loyalty of states to sovereignty, in tension with a universal economic liberalism that spans the globe. ### Concluding Remarks Ultimately, Moyo and Easterly think the Global South can grow, and they rightly discern the necessity of growth in GDP and living standards for uplifting the global poor. However, current approaches like foreign aid and capital investment are failing to deliver. Both scholars propose compelling approaches to development that draw on liberal principles, recognizing the vital role of institutions and incentives for long-term growth. Moyo, in particular, made the case for liberal institutions at a time when democratic capitalism and globalization were in retreat, a moment persisting today. But even if liberal institutions have a proven record of driving growth, political factors might influence how policymakers in the Global South appeal to an egalitarian ideal of sovereignty over a liberal program of growth. This is especially so given the association of capitalism with colonialism—even with liberal arguments to the contrary. And despite exceptions like the East Asian Tigers, economic liberalization has failed to take hold and generate the prosperity development economists wish to see. Institutions matter, economists agree. But for postcolonial states, so did sovereign independence after empire. Nationalist programs of redistribution founded on equality often took priority over liberal integration in the global economy. Tragically, even as colonial order has dissolved, neocolonialism could be said to endure through foreign aid, promoting dependence rather than sustained growth. In reckoning with the challenge of growth in the Global South, it is worthwhile to consider the lasting desire for national self-determination, beyond the institutions and ideas of liberalism in their potency. ## Endnotes [1](#_ednref1). William Easterly, _The Elusive Quest for Growth_ (MIT Press, 2001), xi. [2](#_ednref2). Daniel Susskind, _Growth: A History and a Reckoning_ (Belknap Press of Harvard University Press, 2024), 4, 7. [3](#_ednref3). Easterly, _The Elusive Quest for Growth_, 48. [4](#_ednref4). Amartya Sen, _Development as Freedom_ (Knopf, 1999), 142. [5](#_ednref5). Douglass North, _Institutions, Institutional Change and Economic Performance_ (Cambridge University Press, 1990), 3. [6](#_ednref6). North, _Institutions_, 36, 47. [7](#_ednref7). North, _Institutions_, 3. [8](#_ednref8). Dambisa Moyo, _Edge of Chaos_ (Basic Books, 2018), 34. [9](#_ednref9). Moyo, _Edge of Chaos_, 30. [10](#_ednref10). Moyo, _Edge of Chaos_, 82. [11](#_ednref11). Moyo, _Edge of Chaos_, 119. [12](#_ednref12). Easterly, _The Elusive Quest for Growth_, 279, 277. [13](#_ednref13). George Selgin, “A Libertarian Vision for Money and Banking,” _Libertarianism.org_, March 31, 2020, https://www.libertarianism.org/essays/libertarian-vision-for-money-banking. [14](#_ednref14). Easterly, _The Elusive Quest for Growth_, 249–250. [15](#_ednref15). Easterly, _The Elusive Quest for Growth_, 31. [16](#_ednref16). Easterly, _The Elusive Quest for Growth_, 47. [17](#_ednref17). Dambisa Moyo, _Dead Aid_ (Farrar, Straus and Giroux, 2009), 9. [18](#_ednref18). Moyo, _Dead Aid_, 145. [19](#_ednref19). Moyo, _Dead Aid_, 88. [20](#_ednref20). Gabriele Steinhauser, “Four Takeaways From WSJ’s Reporting on Microfinancing’s Failures,” _The Wall Street Journal_, June 12, 2026, https://www.wsj.com/finance/banking/four-takeaways-from-wsjs-reporting-on-microfinancings-failures-8ac53080. [21](#_ednref21). Moyo, _Dead Aid_, 43. [22](#_ednref22). Adom Getachew, _Worldmaking After Empire_ (Princeton University Press, 2019), 23. [23](#_ednref23). Getachew, _Worldmaking After Empire_, 131. [24](#_ednref24). Getachew, _Worldmaking After Empire_, 150. [25](#_ednref25). Getachew, _Worldmaking After Empire_, 154. [26](#_ednref26). Getachew, _Worldmaking After Empire_, 157. [27](#_ednref27). Easterly, _The Elusive Quest for Growth_, 231. [28](#_ednref28). Easterly, _The Elusive Quest for Growth_, 239. [29](#_ednref29). Easterly, _The Elusive Quest for Growth_, 251.