An Empirical Test of a New Theory of Economic Reform Using Indonesia as a Case Study 1988 to 2005

Debate regarding key factors determining the success or failure of policies of liberalization and privatization, illustrates the need for a concise theoretical foundation to guide decision makers as to how, when, and where to apply policies that change underlying economic structures. Theories of economic growth have failed to identify key factors underlying economic growth, as well as develop adequate yardsticks of development. Moreover often economic growth is taken as a measure of success without considering the underlying social development and distribution of wealth. A new theory is expounded herein and tested using Indonesian time series data. The results of the empirical tests of this theory reported herein add another dimension to the debate on emerging markets. One factor appears vital to the success of such policies. This is the education level of females. It is the only factor that appears consistently correlated with successful achievement of reform packages, measured by two new criterion of economic and social development