On the relationship between economic freedom and economic growth

1
On the relationship between economic freedom and
economic growth

• by
• Jakob de Haan and Jan-Egbert Sturm
• Anna Bonarska
• Elizabeth Rivard

2
Individuals have economic freedom when

• Property protection
• No arrangements that restrain the realization of
  gains from economic activities

3
Comparison of two EFI

• Heritage Foundation/Wall street Journal (Holmes
  et al., 1998)
• 10 elements
• Fraser Institute (Gwartney et al., 1996)
• 17 elements

• Aspects
• International trade
• International capital flows
• Black market
• Taxes
• Government intervension
• Monetary policy and inflation
• Banking
• Price controls and regulation and Market entry
• Property rights

4
Criticism of Fraser Institute and Heritage
Foundation EFIs

• Taxes
• Government spending and consumption
• Inflation

5
Review of previous empirical studies

• Lack of sensitivity analysis
• Link between economic freedom and economic growth
  depends on the measure used
• No studies found that economic freedom does not
  influence growth

6
(No Transcript)
7
New evidence

• The growth equation included the following
• M a vector of standard economic explanatory
  variables
• F indicator of economic freedom
• Z a vector of up to three possible additional
  economic explanatory variables

8
Critique of the model

• Population growth
• Average export and import ratio to GDP

9
(No Transcript)
10
New methodology of Heritage Foundation EFI
11
(No Transcript)
12
Conclusion

• More economic freedom will bring countries more
  quickly to their steady state level of economic
  growth, but that level of syteady state growth is
  not affected by the level of economic freedom.

13
Thank you