Economic Freedom and Economic Growth: A Short-Run Causal Investigation

Journal of Applied Economics, Vol. 3, No. 1, pp. 71-91, May 2000

Posted: 14 Jun 2004

See all articles by Jac C. Heckelman

Jac C. Heckelman

Wake Forest University - Department of Economics

Abstract

The freedom and growth literature has consistently shown that nations which have fewer restrictions on private agents and transactions tend to higher levels of economic growth. It is less clear, however, whether freedom causes growth, growth causes freedom, or the two are jointly determined. To assess these possibilities, Granger-causality tests are performed on annual freedom indicators developed by the Heritage Foundation and national growth rates. The underlying component indexes, which include Trade Policy, Taxation, Government Intervention, Monetary Policy, Capital Flows and Foreign Investment, Banking, Wage and Price Controls, Property Rights, Regulation, and Black Markets, are also tested in addition to the summary freedom rating. The tests suggest the average level of freedom in a nation, as well as many of the specific underlying components of freedom, precedes growth. However, growth may precede one of the component indexes (Government Intervention), and no relationship is found to exist between growth and two of the indexes (Trade Policy and Taxation).

Keywords: Economic freedom, economic growth, Granger-causality

JEL Classification: D78, E3

Suggested Citation

Heckelman, Jac C., Economic Freedom and Economic Growth: A Short-Run Causal Investigation. Journal of Applied Economics, Vol. 3, No. 1, pp. 71-91, May 2000, Available at SSRN: https://ssrn.com/abstract=555990

Jac C. Heckelman (Contact Author)

Wake Forest University - Department of Economics ( email )

P.O. Box 7505
Winston-Salem, NC 27109
United States
(336) 758-5923 (Phone)
(336) 758-6028 (Fax)

HOME PAGE: http://www.wfu.edu/~heckeljc/jac.htm

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
748
PlumX Metrics