Which Economic Freedoms Contribute to Growth? A Comment

The aim of this paper is to contribute to the development of a theory of economic freedom. In this endeavor, we build our framework on the Hayekian notion of freedom (Hayek, 1960) because it explicitly embodies the obvious link between freedom and the state: freedom is an absence of state coercion except for that which enforces abstract, general rules known beforehand. We derive two propositions from this Hayekian thesis and elaborate on them, leading to a categorization of government actions from the viewpoint of economic freedom in which the criterion against which coercive governmental actions must be evaluated is the rule of law, meaning a government’s reliance on general, abstract rules. As an implication, our framework allows us to argue for the imperative differentiation between “efficiency” and “economic freedom” as two separate criteria against which government actions can and must be evaluated. We also show that our framework may help explain the process through which economic freedom enhances growth.

2008

What is the relationship between economic freedom and larger freedoms? Arguably, if economic freedom (EF) promotes growth and if it trickles down EF promotes larger freedoms (e.g. a healthy and productive life, free from want and deprivation). However, higher EF by definition entails lower government interventions in sectors such as health and education, thereby curtailing some aspects of larger freedoms. Thus ambiguity exists with respect to the effect of EF on larger freedoms. Therefore, the basic objective of the paper is to examine how various aspects of economic freedom impinge on larger freedoms. The econometric analysis suggests that higher levels of EF promote not only higher levels of GDP per capita but also impact larger freedoms favourably. However, results also confirm that higher levels of EF associated with few of its sub-components, particularly lower government consumption expenditures and lower transfers and subsidies, affect larger freedoms adversely. Since the rol...

Proceedings of the international conference "Economic and Business Trends Shaping the Future", 2020

The impact of formal institutions, including rule of law, human rights, and civil liberties on economic growth has been in the focus of the latest research agenda of the new institutional economics due to the current pandemic of the Corona-19 virus. Some limitations are necessary to be imposed to address a pandemic, but this is a real risk of lasting deterioration in basic human freedoms. Increased surveillance, restrictions on free expression and information, and limits on public participation are becoming increasingly common. The present fear is that the authorities worldwide are using the current situation to repress human rights for political purposes. This paper aims to explore the effect of the overall institutional environment, understood as the concept of human freedom, on economic prosperity in different jurisdictions around the world. Human freedom is a general term for personal, civil, and economic freedom and therefore the interconnection with economic growth can be seen...

SSRN Electronic Journal, 2015

We investigate the causes of increases in economic freedom by examining a cross-section of countries from 1990-2010. We find that higher initial GNI per capita is associated with larger subsequent increases in economic freedom. We also found countries are less likely to improve their freedom the higher that their initial levels of freedom and energy exports are. In some causes inflationary crises and ethnolingusitic fractionalization were also correlated with smaller increases in economic freedom. These impacts were generally more important in countries with lower initial levels of economic freedom and in preventing countries from making above average increases in economic freedom.

Economia Politica, 2017

The aim of this paper is to provide some additional results concerning how economic freedom enhances growth and/or long-run income. Our hypothesis is that institutions and policies of economic freedom may have different effects on long-run income and growth, both in terms of their size and working mechanisms.

What is the relationship between economic freedom and larger freedoms? Arguably, if economic freedom (EF) promotes growth and if it trickles down EF promotes larger freedoms (e.g. a healthy and productive life, free from want and deprivation). However, higher EF by definition entails lower government interventions in sectors such as health and education, thereby curtailing some aspects of larger freedoms. Thus ambiguity exists with respect to the effect of EF on larger freedoms. Therefore, the basic objective of the paper is to examine how various aspects of economic freedom impinge on larger freedoms. The econometric analysis suggests that higher levels of EF promote not only higher levels of GDP per capita but also impact larger freedoms favourably. However, results also confirm that higher levels of EF associated with few of its sub-components, particularly lower government consumption expenditures and lower transfers and subsidies, affect larger freedoms adversely. Since the role of the State in creating and expanding social opportunities, and in mitigating risks and vulnerability from the broader perspective of human freedoms is well documented, a policy dilemma exists regarding the appropriate level of EF. In light of this dilemma, and acknowledging that public action expands larger freedoms, the paper questions the commonly held belief that government interventions are necessarily less productive. Emphasizing that government expenditure in providing freedoms is vital, it is argued that the role of the government, in an era of liberalization and privatization, needs to be redefined and not necessarily curtailed.

Acta Oeconomica, 2008

This paper evaluates the Economic Freedom of the World Index on the basis of the Hayekian concept of freedom , more precisely on that of its conceptualization in terms of the character of government actions developed in . As a result of a detailed criticism, the components of the EFW index are regrouped in freedom-related, policy and other categories. Although the EFW index is not considered a good measure of economic freedom, its components and the index itself are used in empirical investigations. In these examinations the aim is to show that using the freedom-related components of the EFW index (which is more in line with authors' concept of economic freedom) instead of the index itself may lead to even more plausible propositions than those provided by the EFW index. The results provide support for this argument. JEL Classification: B53, H10, O10

The Cato Journal, 2006

Although there is wide agreement about the stylized fact that economically free societies are richer than other societies, there is less agreement about the impact of economic freedom on growth rates. Some writers contend that the level of economic freedom affects growth, whereas others, in particular de Haan and his associates, dispute the robustness of this claim and find only a relationship between improvements in economic freedom and growth. The most recently published research on the effects of economic freedom on growth (Gwartney and Lawson 2004; Gwartney, Holcombe, and Lawson 2006) reaffirms that there are strong and beneficial effects of the level of economic freedom and of its improvement on growth rates. Looking at the published literature as well as at the work in progress by one of my doctoral students (Liu 2007), my impression is that there are two ways to strengthen the effects of the level of economic freedom on growth: first, choose a longer rather than shorter period of growth observation; second, and more important, use an average measure of the level of economic freedom rather than a single time point measure of economic freedom that refers only to the first year of growth observation. If one compares, say, de Haan and Sturm's (2000) study with Gwartney, Holcombe, and Lawson's (2006), then one finds that the former study uses a

Journal of economic development, 2000

The present paper investigates whether popular measures of economic freedom used in regression analyses by development economists and others are one dimensional. Using the indices provided by the Fraser Institute, Heritage/Wall Street Journal, and Heritage and Freedom House, a principal component analysis indicates that all of the indices above perform about as well as the statistically best single index, and in every case the percentage of total variance explained could be improved by using several principal components. Because the components of the indices are orthogonal, this could be done without multicollinearity problems in regression equations. In sum, the results indicate that economic freedom is not one dimensional and that efforts to squeeze so much into a single index results in lost information and a mis -ranking of the economic freedom of many developing countries.