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

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Author Info
Jac C. Heckelman () (Wake Forest University)

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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).

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Publisher Info
Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): III (2000)
Issue (Month): (May)
Pages: 71-91
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Handle: RePEc:cem:jaecon:v:3:y:2000:n:1:p:71-91

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Related research
Keywords: economic freedom; economic growth; Granger-causality;

Find related papers by JEL classification:
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Heckelman, Jac C & Stroup, Michael D, 2000. "Which Economic Freedoms Contribute to Growth?," Kyklos, Blackwell Publishing, vol. 53(4), pages 527-44.
  2. Dawson, John W, 1998. "Institutions, Investment, and Growth: New Cross-Country and Panel Data Evidence," Economic Inquiry, Oxford University Press, vol. 36(4), pages 603-19, October.
  3. Scully, Gerald W & Slottje, Daniel J, 1991. " Ranking Economic Liberty across Countries," Public Choice, Springer, vol. 69(2), pages 121-52, February.
  4. de Haan, Jakob & Siermann, Clemens L J, 1998. " Further Evidence on the Relationship between Economic Freedom and Economic Growth," Public Choice, Springer, vol. 95(3-4), pages 363-80, June. [Downloadable!] (restricted)
  5. De Vanssay, Xavier & Spindler, Z A, 1994. " Freedom and Growth: Do Constitutions Matter?," Public Choice, Springer, vol. 78(3-4), pages 359-72, March.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lundström, Susanna, 2003. "Effects of Economic Freedom on Growth and the Environment - Implications for Cross-Country Analysis," Working Papers in Economics 115, Göteborg University, Department of Economics. [Downloadable!]
  2. MacOurs, Karen, 2002. "Insecurity of Property Rights and Matching in the Tenancy Market," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24931, European Association of Agricultural Economists. [Downloadable!]
  3. Joshua Hall & Robert Lawson, 2008. "Theory and evidence on economic freedom and economic growth: A comment," Economics Bulletin, Economics Bulletin, vol. 15(18), pages 1-6. [Downloadable!]
  4. Eric Crampton, 2002. "You Get What You Vote For: Electoral Determinants of Economic Freedom," Public Economics 0211003, EconWPA. [Downloadable!]
  5. John W. Dawson, 2007. "The Empirical Instituions-Growth Literature: Is Something Amiss at the Top?," Working Papers 07-04, Department of Economics, Appalachian State University. [Downloadable!]
    Other versions:
  6. Kimlong Chheng, 2005. "How Do Economic Freedom and Investment Affect Economic Growth?," Macroeconomics 0509021, EconWPA. [Downloadable!]
  7. Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute. [Downloadable!]
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