Economic Freedom and Economic Growth: A Short-run Causal Investigation
AbstractThe 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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Bibliographic InfoArticle provided by Universidad del CEMA in its journal Journal of Applied Economics.
Volume (Year): III (2000)
Issue (Month): (May)
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More information through EDIRC
economic freedom; economic growth; Granger-causality;
Find related papers by JEL classification:
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
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- repec:cto:journl:v:18:y:1998:i:2:p: is not listed on IDEAS
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- 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.
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