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Poverty and Economic Freedom: Evidence from Cross-Country Data

  • Rana Hasan

    ()

    (Asian Development Bank, Manila, Philippines)

  • M.G. Quibria

    (Operations Evaluation Department, Asian Development Bank, Manila, Philippines)

  • Yangseon Kim

    (Visiting Scholar, East-West Center)

This paper explores the empirical relationship between poverty and economic freedom. In doing so, it estimates the levels of absolute poverty for a panel of over forty developing countries and then utilizes fixed effects and GMM-IV estimators to derive the empirical relationships. The principal empirical results that emerge from this exercise indicate that important indicators of economic freedom such as openness to trade and small size of the government are robustly associated with poverty reduction. Labor market flexibility, which reflects an important dimension of economic freedom, does not have a significant effect on poverty on average. However, there is some evidence that trade's beneficial impact on poverty has been smaller in economies with more regulated labor markets. Finally, civil liberties that encompass various types of important economic freedom such as poverty rights, rule of law, etc., also contribute significantly to poverty reduction. This result contrasts with that for political liberties, which have seemingly no impact on poverty reduction. All these suggest that economic freedom is as much important for economic growth as for poverty reduction.

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Paper provided by East-West Center, Economics Study Area in its series Economics Study Area Working Papers with number 60.

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Length: 40 pages
Date of creation: Sep 2003
Date of revision:
Handle: RePEc:ewc:wpaper:wp60
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  1. Quibria, M.G., 2002. "Growth and Poverty: Lessons from the East Asian Miracle Revisited," MPRA Paper 2638, University Library of Munich, Germany.
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  13. Lipton, Michael & Ravallion, Martin, 1995. "Poverty and policy," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 41, pages 2551-2657 Elsevier.
  14. Smolensky, Eugene, et al, 1994. "Growth, Inequality, and Poverty: A Cautionary Note," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 40(2), pages 217-22, June.
  15. Surjit Bhalla, 2002. "Imagine There's No Country: Poverty, Inequality, and Growth in the Era of Globalization," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 348.
  16. Pernia, Ernesto M. & Quibria, M.G., 1999. "Poverty in developing countries," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 45, pages 1865-1934 Elsevier.
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