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Contagious Capitalism

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Author Info
Peter T. Leeson (Department of Economics, West Virginia University)
Russell S. Sobel (Department of Economics, West Virginia University)

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Abstract

Is capitalism contagious? Since WWI, global foreign policy has treated economic freedom/repression like a virus that spreads between countries. Most recently, the "domino theory" of freedom has played prominently in U.S. foreign policy toward Asia, Latin America, and the Caribbean during the Cold War, and the Middle East during the War on Terror. This paper investigates the spread of economic freedom between nations. Our analysis considers two potential channels of this spread: geography and trade. We estimate two models of spatial dependence using panel data that cover more than 100 countries between 1985 and 2000. We find that capitalism is in fact contagious. Countries consistently "catch" about 20 percent of their average geographic neighbors'and trading partners' levels and changes in economic freedom. We also explore American foreign military intervention's ability to spread economic freedom abroad. We find that although intervention may increase freedom in U.S.-occupied countries, this freedom is not contagious. Using our estimates of freedom's spread when it is contagious, we simulate the impact of successful Iraqi occupation on Middle Eastern freedom. Even under the most favorable assumptions, we find that U.S. occupation would minimally improve freedom in this region.

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File URL: http://www.be.wvu.edu/div/econ//work/pdf_files/06-04.pdf
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File Function: First version, August, 2004
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Publisher Info
Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 06-04.

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Length: 64 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:wvu:wpaper:06-04

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