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On the relationship between economic freedom and economic growth by Jakob de Haan and Jan-Egbert Sturm Anna Bonarska Elizabeth Rivard Individuals have economic freedom when: Property protection No arrangements that restrain the realization of gains from economic activities 23.10.2007 Comparison of two EFI Heritage Foundation/Wall street Journal (Holmes et al., 1998) 10 elements Aspects: 1. International trade International capital flows Black market Taxes Government intervension Monetary policy and inflation Banking Price controls and regulation and Market entry Property rights 2. 3. 4. 5. Fraser Institute (Gwartney et al., 1996) 6. 17 elements 9. 23.10.2007 7. 8. Criticism of Fraser Institute and Heritage Foundation EFI’s Taxes Government spending and consumption Inflation 23.10.2007 Review of previous empirical studies Lack of sensitivity analysis Link between economic freedom and economic growth depends on the measure used No studies found that economic freedom does not influence growth 23.10.2007 23.10.2007 New evidence The growth equation included the following: 23.10.2007 M: a vector of standard economic explanatory variables F: indicator of economic freedom Z: a vector of up to three possible additional economic explanatory variables Critique of the model Population growth Average export and import ratio to GDP 23.10.2007 23.10.2007 New methodology of Heritage Foundation EFI 23.10.2007 23.10.2007 Conclusion More economic freedom will bring countries more quickly to their steady state level of economic growth, but that level of syteady state growth is not affected by the level of economic freedom. 23.10.2007 Thank you
