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Revisiting the relationship between economic freedom and development to account for statistical deception by autocratic regimes

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  • Alvarez, Sean P.
  • Geloso, Vincent
  • Scheck, Macy

Abstract

The literature connecting economic freedom indexes to income levels and growth generally points in the direction of a positive association. In this paper, we argue that this finding is a conservative one as the data is biased against finding any effects. The bias emerges as a result of the tendency of dictatorial regimes to overstate their GDP level. Dictatorships also tend to have lower scores of economic freedom. This downwardly biases any estimations of the relation between income and economic freedom. In this paper, we use recent corrections to GDP numbers – based on nighttime light intensity – to estimate the bias. We find that the true effects of economic freedom on income levels are between 1.1 and 1.62 times greater than commonly estimated. For economic growth, the bias is far smaller. Finally, we find suggestive evidence that the relationship between changes in economic freedom and economic growth is being underestimated as a result of the lies of dictators regarding GDP.

Suggested Citation

  • Alvarez, Sean P. & Geloso, Vincent & Scheck, Macy, 2024. "Revisiting the relationship between economic freedom and development to account for statistical deception by autocratic regimes," European Journal of Political Economy, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:poleco:v:85:y:2024:i:c:s017626802400079x
    DOI: 10.1016/j.ejpoleco.2024.102577
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    More about this item

    Keywords

    Economic freedom; Economic growth; Dictatorship; Development;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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