Free to Grow? A Matching Methods Analysis of Economic Reform in the United States

Abstract

Country-wide economic reforms have been shown to causally improve economic outcomes. However, little empirically rigorous work has been done at the subnational level, particularly within the United States. This paper uses matching methods to estimate the causal impact of economic reforms (measured as sustained and large five-year increases in the Economic Freedom of North American index) on subsequent net income per capita growth. The results suggest that state-level reforms provide a large, but short-term boost in economic growth. This also holds, and is statistically and impactfully more meaningful, when examining reforms in labor market regulation.

Keywords: economic freedom, regional development, matching methods

JEL Classification: R11, O18, H70