Global Distribution and Dynamics of Economic Freedom: Non-Parametric Approach

Posted: 29 Oct 2013

See all articles by Aleksandar Keseljevic

Aleksandar Keseljevic

University of Ljubljana - Faculty of Economics

Rok Spruk

University of Ljubljana - Faculty of Economics

Date Written: May 8, 2013

Abstract

The paper exploits the distributional dynamics and structural changes in the endogenous distribution of economic freedom across countries over time by utilizing the Rosenblatt-Parzen Kernel density estimator compared to the original distribution based on the methodology proposed by the Heritage Foundation. We utilize the distribution of economic freedom as a tool to identify which policies enhanced the overall level of economic freedom. We develop the distribution of endogenous economic freedom by decomposing effects of economic freedom on the level of income per capita in IV-2SLS estimation framework for a panel of 134 countries to identify the effect of institutions of economic freedom on the level of per capita income. Structural estimates indicate that improvements in the monetary, fiscal, and labor freedom exert the strongest direct effect on the level of economic freedom and indirect effect on the level of real income per capita. Our study demonstrates considerable differences between the original and endogenous distributional dynamics of economic freedom over time. In exploiting the non-parametric setting of endogenous economic freedom, we identify a recent emergence of twin-peak distribution across countries where developing nations have improved the level of economic freedom considerably compared to the initial year.

Keywords: Economic freedom, distribution of economic freedom, endogeneity, non-parametric methods

JEL Classification: E02, O11, O23, O43, C23, C51

Suggested Citation

Keseljevic, Aleksandar and Spruk, Rok, Global Distribution and Dynamics of Economic Freedom: Non-Parametric Approach (May 8, 2013). Economic Modelling, Vol. 33, 2013. Available at SSRN: https://ssrn.com/abstract=2346144

Aleksandar Keseljevic

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Rok Spruk (Contact Author)

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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