Freedom, Ratings and Economic Growth: In Search of Reliable Dependencies

Abstract

Ratings of institutional quality are widely known and used in academic literature. Among such ratings are some whose compilation procedure took decades to perfect. Dozens of assessments have been accumulated, pertaining to a large and growing list of countries. These ratings use expert evaluations with country ranking. However, such evaluations might be essentially incompatible with each other, and therefore inapplicable in a comparative study of one specific point in time chosen for observation (i.e., for a cross-section analysis). We propose a group of variables of our own, using evaluations of “political” institutions only to ascertain the presence or absence of a certain phenomenon (yes/no). Such a set of variables makes a cross-section analysis feasible. The countries' experience in Rule of Law Democracy and Limited Government (both are quite clearly defined in a formal manner) provides a long-term institutional development aggregate evaluation for cross-section analysis. We also propose a thoroughly simple rating based on combining the proposed variables with indices and indicators which have already become widely accepted, but taking this combination as part of a data panel. At the same time, using a panel regression makes it possible to mitigate the problem of poor compatibility of expert evaluations.

Keywords: Rule of Law Democracy, Limited Government, Institutions quality indicators, Institutions and Economic growth

JEL Classification: P50, N40, O43