Development of states and forms of Capitalism: An empirical examination of their relationship

Given the current economic crisis, we find this time of economic analysis to be both timely, and useful in determining which economic “style” is most supportive countries’ development in global capitalism. The goal of this paper is to determine which form of capitalism is most supportive the country’s development. The hypothesis that is raised in this paper is “The countries with the Liberal Market Economics system are more developed than Coordinated Market economics system countries”. This paper uses Hall and Soskice’s (2001) theoretical approach to varieties of capitalism to analyze countries’ competitiveness according to the World Economic Forum (WEF) and International Institute For Development Management (IMD) competitiveness indices. We use Knell and Srholec’s (2005) introduced methodology to calculate the index of coordination, which determines a country’s type of capitalism. The index consists of 12 variables, which later are divided into 4 groups according to the factor analysis results. Calculations confirmed the main differences, indicated in the literature, between two forms of capitalism at opposite extremes: Liberal Market Economies (LME) and Coordinated Market Economies (CME). Moreover, we discovered that CME is more supportive according to the human development rankings.