How Much Economic Freedom is Necessary for Economic Growth? Theory and Evidence
Economics Bulletin, Vol. 15, No. 2, pp. 1-20
Posted: 23 May 2008
The hypothesis that economic freedom and related variables are significant determinants of real per capita income and growth is critically evaluated. Economic freedom is found necessary for higher levels of per capita income and growth largely in terms of threshold effects as opposed to persistent marginal effects. More economic freedom does not appear to yield higher levels of per capita income. And securing particular levels of economic freedom does not guarantee higher levels of per capita income or growth. Secure private property rights is found to be a most significant positive causal variable as is sound money, whereas moderate amounts of labor regulation and big government are not found to be bad for the economy. Also, good corporate governance, in addition to economic freedom, is of considerable import. Unlike most studies, traditional statistical methods are supplemented by graphical analysis in an effort to determine threshold values for economic freedom and its components.
Keywords: New institutional economics, growth, economic freedom, private property rights, labor rights, government, governance, corruption, threshold effects, statistical analyses
JEL Classification: B41, C12, C50, D60, E60, K00, N10, O10, O50, P16
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