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Economic freedom and economic crises

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  • Bjørnskov, Christian

Abstract

In this paper, I explore the politically contested association between the degree of capitalism, captured by measures of economic freedom, and the risk and characteristics of economic crises. After offering some brief theoretical considerations, I estimate the effects of economic freedom on crisis risk in the post-Cold War period 1993–2010. I further estimate the effects on the duration, peak-to-trough GDP ratios and recovery times of 212 crises across 175 countries within this period. Estimates suggest that economic freedom is robustly associated with smaller peak-to-trough ratios and shorter recovery time. These effects are driven by regulatory components of the economic freedom index.

Suggested Citation

  • Bjørnskov, Christian, 2016. "Economic freedom and economic crises," European Journal of Political Economy, Elsevier, vol. 45(S), pages 11-23.
  • Handle: RePEc:eee:poleco:v:45:y:2016:i:s:p:11-23 DOI: 10.1016/j.ejpoleco.2016.08.003
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    Keywords

    Crisis; Economic freedom; Institutions;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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