Economic Freedom of North America at State Borders

Abstract

I use matched county pairs on either side of US state borders to investigate the causal effects of the Economic Freedom of North America index (EFNA) on local outcomes. This method is similar to Dube et al. (2010). I construct a panel of county pairs running from 1981-2012 and four measures of outcomes, logged real incomes, logged real per capita incomes, employment, and logged real wages, employing single year and five year differences-in-differences. I find small, but precisely estimated, effects on incomes but mixed effects on wages and employment. All regressions show low R^2. This supports the hypothesis that state-level economic freedom improves capital income or that it attracts capital income across state borders.

Keywords: Economic Freedom of North America, Economic Institutions, Regional Economics

JEL Classification: O43, R28