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Contagious Capitalism

  • Peter T. Leeson

    (Department of Economics, West Virginia University)

  • Russell S. Sobel

    (Department of Economics, West Virginia University)

Is capitalism contagious? Since WWI, global foreign policy has treated economic freedom/repression like a virus that spreads between countries. Most recently, the ?domino theory? of freedom has played prominently in U.S. foreign policy toward Asia, Latin America, and the Caribbean during the Cold War, and the Middle East during the War on Terror. This paper investigates the spread of economic freedom between nations. Our analysis considers two potential channels of this spread: geography and trade. We estimate two models of spatial dependence using panel data that cover more than 100 countries between 1985 and 2000. We ?nd that capitalism is in fact contagious. Countries consistently ?catch?about 20 percent of their average geographic neighbors?and trading partners?levels and changes in economic freedom. We also explore American foreign military intervention?s ability to spread economic freedom abroad. We ?nd that although intervention may increase freedom in U.S. occupied countries, this freedom is not contagious. Using our estimates of freedom?s spread when it is contagious, we simulate the impact of successful Iraqi occupation on Middle Eastern freedom. Even under the most favorable assumptions, we ?nd that U.S. occupation would minimally improve freedom in this region.

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File URL: http://www.be.wvu.edu/phd_economics/pdf/06-04.pdf
File Function: First version, 2006
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Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 06-04 Classification-.

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Length: 64 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:wvu:wpaper:06-04
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Web page: http://www.be.wvu.edu/phd_economics/
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  1. Seth W. Norton, 1998. "Poverty, Property Rights, and Human Well-Being: A Cross-National Study," Cato Journal, Cato Journal, Cato Institute, vol. 18(2), pages 233-245, Fall.
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  6. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
  7. Christopher J. Coyne & Peter T. Leeson, 2004. "Read All About It! Understanding the Role of Media in Economic Development," Kyklos, Wiley Blackwell, vol. 57(1), pages 21-44, 02.
  8. Peter J. Boettke & Christopher J. Coyne & Peter T. Leeson, 2008. "Institutional Stickiness and the New Development Economics," American Journal of Economics and Sociology, Wiley Blackwell, vol. 67(2), pages 331-358, 04.
  9. James D. Gwartney & Robert A. Lawson & Randall G. Holcombe, 1999. "Economic Freedom and the Environment for Economic Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 643-, December.
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  11. Douglass C. North, 2005. "Introduction to Understanding the Process of Economic Change
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