On the relationship between economic freedom and economic growth

by

Jakob de Haan and Jan-Egbert Sturm

Anna Bonarska

Elizabeth Rivard

23.10.2007

Individuals have economic freedom when:

Property protection

No arrangements that restrain the realization of gains from economic activities

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Comparison of two EFI

Heritage Foundation/Wall street Journal (Holmes et al., 1998) 10 elements

Fraser Institute (Gwartney et al., 1996) 17 elements

Aspects:

1. International trade2. International capital flows3. Black market4. Taxes5. Government intervension6. Monetary policy and inflation7. Banking8. Price controls and regulation

and Market entry9. Property rights

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Criticism of Fraser Institute and Heritage Foundation EFI’s

Taxes

Government spending and consumption

Inflation

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Review of previous empirical studies

Lack of sensitivity analysis

Link between economic freedom and economic growth depends on the measure used

No studies found that economic freedom does not influence growth

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New evidence

The growth equation included the following: M: a vector of standard economic

explanatory variables F: indicator of economic freedom Z: a vector of up to three possible

additional economic explanatory variables

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Critique of the model

Population growth

Average export and import ratio to GDP

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New methodology of Heritage Foundation EFI

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Conclusion

More economic freedom will bring countries more quickly to their steady state level of economic growth, but that level of syteady state growth is not affected by the level of economic freedom.

Thank you