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

Author

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  • Jac C. Heckelman

    () (Wake Forest University)

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).

Suggested Citation

  • Jac C. Heckelman, 2000. "Economic Freedom and Economic Growth: A Short-run Causal Investigation," Journal of Applied Economics, Universidad del CEMA, vol. 3, pages 71-91, May.
  • Handle: RePEc:cem:jaecon:v:3:y:2000:n:1:p:71-91
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    File URL: http://www.cema.edu.ar/publicaciones/download/volume3/heckelman.pdf
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    References listed on IDEAS

    as
    1. Heckelman, Jac C & Stroup, Michael D, 2000. "Which Economic Freedoms Contribute to Growth?," Kyklos, Wiley Blackwell, vol. 53(4), pages 527-544.
    2. 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.
    3. Joshua Hall & Robert Lawson, 2009. "Economic Freedom and Peace," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 37(4), pages 445-446, December.
    4. repec:cto:journl:v:18:y:1998:i:2:p: is not listed on IDEAS
    5. 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 363-380, June.
    6. W. Kenn Farr & Richard A. Lord & J. Larry Wolfenbarger, 1998. "Economic Freedom, Political Freedom, and Economic Well-Being: A Causality Analysis," Cato Journal, Cato Journal, Cato Institute, vol. 18(2), pages 247-262, Fall.
    7. De Vanssay, Xavier & Spindler, Z A, 1994. "Freedom and Growth: Do Constitutions Matter?," Public Choice, Springer, vol. 78(3-4), pages 359-372, March.
    8. 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)

    More about this item

    Keywords

    economic freedom; economic growth; Granger-causality;

    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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