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Endogenous economic freedom and the wealth of nations: evidence from a panel of countries, 1996--2011

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  • Aleksandar Kešeljević
  • Rok Spruk

Abstract

Indexes of economic freedom measure the degree to which the policies and institutions of countries are supportive of economic freedom. The authors find a considerable scope for improvement in Index of Economic Freedom, created by Heritage Foundation, since not all components of index have equal effect on economic well-being. Contrary to Heritage methodology the authors tackle the aggregation bias and highlight that each index component contributes differently to the level of economic freedom and subsequently to the level of income per capita. The level of fiscal freedom and monetary freedom exert the strongest influence on the overall index of economic freedom. Authors present the new endogenous cross-country ranking of 135 countries from Instrumental Variable-Two Stage Least Squares (IV-2SLS) empirical specification which removes the inconsistencies arising from the arbitrary assumption of the equivalent effect of each component on the overall index and, hence, the level of real income per capita.

Suggested Citation

  • Aleksandar Kešeljević & Rok Spruk, 2013. "Endogenous economic freedom and the wealth of nations: evidence from a panel of countries, 1996--2011," Applied Economics, Taylor & Francis Journals, vol. 45(28), pages 3952-3962, October.
    • Handle: RePEc:taf:applec:v:45:y:2013:i:28:p:3952-3962
    DOI: 10.1080/00036846.2012.736948
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    References listed on IDEAS

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    1. International Finance Corporation & World Bank, 2012. "Doing Business 2012 : Doing Business in a More Transparent World," World Bank Publications - Books, The World Bank Group, number 5907, April.
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    1. Marson, Marta & Migheli, Matteo & Saccone, Donatella, 2023. "Free to die: Economic freedoms and influenza mortality," Economics & Human Biology, Elsevier, vol. 49(C).
    2. Jue Yang & Shunsuke Managi & Masayuki Sato, 2015. "The effect of institutional quality on national wealth: an examination using multiple imputation method," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(3), pages 431-453, July.
    3. Andrej Srakar & Vesna Čopič & Miroslav Verbič, 2018. "European cultural statistics in a comparative perspective: index of economic and social condition of culture for the EU countries," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 42(2), pages 163-199, May.
    4. Andrej Srakar & Miroslav Verbic & Vesna Copic, 2015. "European Cultural Models in Statistical Perspective: A High-dimensionally Adjusted Cultural Index for the EU Countries, 2005-2009," ACEI Working Paper Series AWP-06-2015, Association for Cultural Economics International, revised Jul 2015.

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