IDEAS home Printed from https://ideas.repec.org/p/zbw/iwhdps/iwh-8-06.html
   My bibliography  Save this paper

Forced to Freedom? Empirical Relations between Aid and Economic Freedom

Author

Listed:
  • Knedlik, Tobias
  • Kronthaler, Franz

Abstract

The paper explores the relationships between economic freedom on the one side and development aid and IMF credit as approximation for conditional aid on the other side. After a short review of current literature on the issue of economic development, economic freedom, aid, and IMF credit, the paper develops a simple panel regression model to evaluate the relationship between “economic freedom” as dependent variable and “aid” and “IMF credit” as independent variables. The estimation is based upon data taken from the World Bank’s World Development Indicators and the Heritage Index of Economic Freedom. In contrast to previous research, our results allow the rejection of the hypothesis that IMF credit increases economic freedom and that aid is not contributing to economic freedom. The estimation results suggest that, firstly, aid is positively correlated with economic freedom, and secondly, that IMF credit is negatively correlated with economic freedom. Taking IMF credit as proxy for conditional aid, we conclude that for the period of observation it could not be shown that countries can be forced to economic freedom by aid conditions.

Suggested Citation

  • Knedlik, Tobias & Kronthaler, Franz, 2006. "Forced to Freedom? Empirical Relations between Aid and Economic Freedom," IWH Discussion Papers 8/2006, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-8-06
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/23753/1/8-06.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jan-Egbert Sturm & Jakob De Haan, 2001. "How robust is the relationship between economic freedom and economic growth?," Applied Economics, Taylor & Francis Journals, vol. 33(7), pages 839-844.
    2. Sadequl Islam, 1996. "Economic freedom, per capita income and economic growth," Applied Economics Letters, Taylor & Francis Journals, vol. 3(9), pages 595-597.
    3. Hans Pitlik, 2002. "The Path of Liberalization and Economic Growth," Kyklos, Wiley Blackwell, vol. 55(1), pages 57-80.
    4. de Haan, Jakob, 2003. "Economic freedom: editor's introduction," European Journal of Political Economy, Elsevier, vol. 19(3), pages 395-403, September.
    5. Stephen Knack, 2001. "Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests," Southern Economic Journal, John Wiley & Sons, vol. 68(2), pages 310-329, October.
    6. de Haan, Jakob & Sturm, Jan-Egbert, 2000. "On the relationship between economic freedom and economic growth," European Journal of Political Economy, Elsevier, vol. 16(2), pages 215-241, June.
    7. Elsabé Loots, 2006. "Aid And Development In Africa: The Debate, The Challenges And The Way Forward," South African Journal of Economics, Economic Society of South Africa, vol. 74(3), pages 363-381, September.
    8. Easton, Stephen T & Walker, Michael A, 1997. "Income, Growth, and Economic Freedom," American Economic Review, American Economic Association, vol. 87(2), pages 328-332, May.
    9. Pitlik, Hans, 2002. "The Path of Liberalization and Economic Growth," Kyklos, Wiley Blackwell, vol. 55(1), pages 57-79.
    10. Tony Addison & George Mavrotas & Mark McGillivray, 2005. "Aid to Africa: an unfinished agenda," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(8), pages 989-1001.
    11. Paul Collier & David Dollar, 2004. "Development effectiveness: what have we learnt?," Economic Journal, Royal Economic Society, vol. 114(496), pages 244-271, June.
    12. De Vanssay, Xavier & Spindler, Z A, 1994. "Freedom and Growth: Do Constitutions Matter?," Public Choice, Springer, vol. 78(3-4), pages 359-372, March.
    13. Simeon Djankov & Jose Montalvo & Marta Reynal-Querol, 2008. "The curse of aid," Journal of Economic Growth, Springer, vol. 13(3), pages 169-194, September.
    14. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-641, September.
    15. Jac C. Heckelman & Stephen Knack, 2008. "Foreign Aid and Market‐Liberalizing Reform," Economica, London School of Economics and Political Science, vol. 75(299), pages 524-548, August.
    16. Boockmann, Bernhard & Dreher, Axel, 2003. "The contribution of the IMF and the World Bank to economic freedom," European Journal of Political Economy, Elsevier, vol. 19(3), pages 633-649, September.
    17. Heckelman, Jac C & Stroup, Michael D, 2000. "Which Economic Freedoms Contribute to Growth?," Kyklos, Wiley Blackwell, vol. 53(4), pages 527-544.
    18. Papanek, Gustav F, 1972. "The Effect of Aid and other Resource Transfers on Savings and Growth in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 82(327), pages 934-950, September.
    19. de Haan, Jakob & Sturm, Jan-Egbert, 2003. "Does more democracy lead to greater economic freedom? New evidence for developing countries," European Journal of Political Economy, Elsevier, vol. 19(3), pages 547-563, September.
    20. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    21. Dawson, John W, 1998. "Institutions, Investment, and Growth: New Cross-Country and Panel Data Evidence," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 603-619, October.
    22. John Hudson, 2004. "Introduction: Aid and Development," Economic Journal, Royal Economic Society, vol. 114(496), pages 185-190, June.
    23. Unknown, 2005. "Executive Summaries," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 8(1), pages 1-7.
    24. Scully, Gerald W & Slottje, Daniel J, 1991. "Ranking Economic Liberty across Countries," Public Choice, Springer, vol. 69(2), pages 121-152, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jakob De Haan & Susanna Lundström & Jan‐Egbert Sturm, 2006. "Market‐oriented institutions and policies and economic growth: A critical survey," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 157-191, April.
    2. Doucouliagos, Chris & Ulubasoglu, Mehmet Ali, 2006. "Economic freedom and economic growth: Does specification make a difference?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 60-81, March.
    3. de Haan, Jakob, 2003. "Economic freedom: editor's introduction," European Journal of Political Economy, Elsevier, vol. 19(3), pages 395-403, September.
    4. Blau, Benjamin M., 2017. "Economic freedom and crashes in financial markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 33-46.
    5. Jac C. Heckelman & Stephen Knack, 2009. "Aid, Economic Freedom, And Growth," Contemporary Economic Policy, Western Economic Association International, vol. 27(1), pages 46-53, January.
    6. Young, Andrew T. & Sheehan, Kathleen M., 2014. "Foreign aid, institutional quality, and growth," European Journal of Political Economy, Elsevier, vol. 36(C), pages 195-208.
    7. Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute.
    8. Boockmann, Bernhard & Dreher, Axel, 2003. "The contribution of the IMF and the World Bank to economic freedom," European Journal of Political Economy, Elsevier, vol. 19(3), pages 633-649, September.
    9. Mina Baliamoune-Lutz, 2012. "Do Institutions And Social Cohesion Enhance The Effectiveness Of Aid? New Evidence From Africa," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-19.
    10. Hatice KÜÇÜKKAYA, 2017. "EUREFE’17 International Conference," Turkish Economic Review, KSP Journals, vol. 4(3), pages 343-344, September.
    11. Martin Rode & Sebastian Coll, 2012. "Economic freedom and growth. Which policies matter the most?," Constitutional Political Economy, Springer, vol. 23(2), pages 95-133, June.
    12. Rachel L. Mathers & Claudia R. Williamson, 2011. "Cultural Context: Explaining the Productivity of Capitalism," Kyklos, Wiley Blackwell, vol. 64(2), pages 231-252, May.
    13. Benjamin Powell & Matt E. Ryan, 2006. "Does Development Aid Lead to Economic Freedom?," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 22(Fall 2006), pages 1-21.
    14. Heckelman, Jac C. & Stroup, Michael D., 2005. "A comparison of aggregation methods for measures of economic freedom," European Journal of Political Economy, Elsevier, vol. 21(4), pages 953-966, December.
    15. Aslý YENÝPAZARLI, 2017. "Economic freedom and effects on economic growth: A time series analysis for Turkey," Turkish Economic Review, KSP Journals, vol. 4(3), pages 345-351, September.
    16. José Aixalá & Gema Fabro, 2009. "Economic freedom, civil liberties, political rights and growth: a causality analysis," Spanish Economic Review, Springer;Spanish Economic Association, vol. 11(3), pages 165-178, September.
    17. Dierk Herzer & Michael Grimm, 2012. "Does foreign aid increase private investment? Evidence from panel cointegration," Applied Economics, Taylor & Francis Journals, vol. 44(20), pages 2537-2550, July.
    18. Bjørnskov, Christian, 2010. "Do elites benefit from democracy and foreign aid in developing countries?," Journal of Development Economics, Elsevier, vol. 92(2), pages 115-124, July.
    19. Ewing, Bradley T. & Payne, James E. & Caporin, Massimilano, 2022. "The Asymmetric Impact of Oil Prices and Production on Drilling Rig Trajectory: A correction," Resources Policy, Elsevier, vol. 79(C).
    20. Compton, Ryan A. & Giedeman, Daniel C. & Hoover, Gary A., 2014. "A distributional analysis of the benefits of economic freedom," European Journal of Political Economy, Elsevier, vol. 33(C), pages 121-133.

    More about this item

    Keywords

    Ökonomische Freiheit; Entwicklungshilfe; IMF-Kredite; wirtschaftliche Entwicklung; aid; economic freedom; IMF credit; economic development;
    All these keywords.

    JEL classification:

    • P10 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - General
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • F35 - International Economics - - International Finance - - - Foreign Aid

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:iwhdps:iwh-8-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/iwhhhde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.