Economic and Democratic Freedoms
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Relationships among Democratic Freedoms in the Former Soviet Republics: A Causality Analysis
Constitutional Political Economy forthcoming
Abstract. Empirical studies often use Freedom House ratings for Political Rights and/or Civil Liberties as institutional proxies for the degree of democracy. In this study, Granger-causality tests are used which reveal that Political Rights tend to precede Civil Liberties, but not the reverse, in a panel data set of former Soviet Republics. For transition nations, Freedom House also publishes a separate breakdown of democratic characteristics. Empirical tests suggest Civil Society and Judicial Framework Granger-cause Electoral Process, Governance Granger-causes Civil Society, and all four components Granger-cause Independent Media. Each measure of democracy is related to at least one other but no evidence for dual causation is found.
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Aid, Economic Freedom, and Growth
Contemporary Economic Policy 27: 46-53, 2009
Abstract. Foreign aid has often been intended by donors to entice recipient nations into policy and institutional reforms favorable to private sector economic development. In this study, we investigate the relationship between aid and changes to economic freedom in recipient nations over the 1990-2000 decade. The evidence is mixed. In general we find that foreign aid has no significant effect on economic freedom overall. However, by utilizing an hedonic approach on the different categories of economic freedom we find that aid has still managed to contribute toward a policy and institutional environment favorable to growth, as the different categories of economic freedom improved by aid more than offset those which are harmed by aid, in terms of their impact on growth.
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Foreign Aid and Market Liberalizing Reform
Economica 75: 542-548, 2008
Abstract. Market-oriented economic policies—reflected in limited economic activity by government, protection of private property rights, a sound monetary policy, outward orientation regarding trade and efficient tax and regulatory policy—have been strongly linked to faster rates of economic growth. Foreign aid is often provided in the belief that it encourages liberalizing reforms in these areas. This paper analyses the impact of aid on market-liberalizing policy reform, correcting for the possible endogeneity of aid. Results indicate that higher aid slowed reform over the 1980 to 2000 period, as measured by a broad index of policies. Disaggregating policy into five areas, aid is associated with slower reform in some policy areas but not in others. Disaggregating by decade, aid’s adverse impact on policy reform is much more pronounced for the 1980s than for the 1990s.
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A Comparison of Aggregation Methods for Measures of Economic Freedom
European Journal of Political Economy 21: 953-966, 2005
Abstract. Empiricists have used various editions of an economic freedom index (EFI) initially developed by Gwartney, Lawson and Block (1996) to examine the relationship between economic freedom and other socio-economic variables, such as growth or investment. The EFI quantifies the level of particular institutional characteristics thought to promote economic freedom and aggregates them into a single index value. The aggregation procedures utilized by Gwartney and Lawson in developing their index have changed over time and other scholars have promoted alternative methods. We examine several index aggregation procedures and show that each design may have potential methodological flaws which can greatly affect the empirical findings.
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Proxies for Economic Freedom: A Critique of the Hanson Critique
Southern Economic Journal 72: 492-501, 2005
Abstract. Economic freedom indicators have become quite popular recently as a useful tool to quantify the relationship between a country's institutions and its prosperity. Hanson (2003) criticizes these types of studies for: (i) failing to adequately distinguish between different proxies for economic freedom, (ii) not considering the potential for endogeneity, and (iii) accepting significance of economic freedom's ability to promote prosperity even though regression analysis generates "nonsensical" results. Closer inspection reveals that most of his arguments are questionable, do not apply to much of the literature, or are not original, and that he is guilty of misinterpreting his own econometric evidence relating freedom to the level of GDP.
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On the Measurement of Comparative Economic Freedom Across Nations
International Journal of Business and Economics 1: 251-261, 2002
Abstract. The measurement of economic freedom is discussed. One particular set of freedom indices, developed by Heritage Foundation, is detailed including how the indices are constructed and potential problems in the methodological design. Comparisons are made for the different levels of freedom individual nations and regions achieve.
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Which Economic Freedoms Contribute to Growth? Reply
Kyklos 55: 417-420, 2002
Abstract. Reply to comment by Sturn et al. on article below.
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Which Economic Freedoms Contribute to Growth?
Kyklos 53: 527-544, 2000
Abstract. The literature on economic freedom and growth has utilized summary measures of freedom to determine its general significance for economic growth. We believe the summary measures lead to misspecification problems. We utilize Heston-Summers growth data to determine which of the disaggregated categories of economic freedom lead to growth and find that only a few of the indexes significantly affect growth. These growth regressions generate new weights for aggregating the indexes into an overall summary measure. This new measure can be interpreted as deriving a relative ranking of nations that have a relatively higher presence of growth promoting economic freedoms and more restrictions on those economic freedoms that inhibit growth.
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Economic Freedom and Economic Growth: A Short-run Causal Investigation
Journal of Applied Economics 3: 71-91, 2000
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).