Does economic freedom cause prosperity? An IV approach

Faría, Hugo J.; Montesinos, Hugo M.

doi:10.1007/s11127-009-9440-0

Cited by 105 publications

(61 citation statements)

References 61 publications

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“…Farr, Lord and Wolfenbarger (2008) analysed the causality between economic freedom and growth on a sample of 98 countries and their results show that economic freedom Granger-causes economic growth. Faria and Montesinos (2009) found a "robust association between economic freedom and prosperity". In their literature review on this subject using the Economic Freedom of the World index, Hall and Lawson (2014) indicate that over two-thirds of the existing studies found that economic freedom is related to positive outcomes such as faster growth, better living standards, and more happiness.…”

Section: Literature Reviewmentioning

confidence: 99%

Modelling Economic Growth Based on Economic Freedom and Social Progress

2015

EJSD

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Economic growth is one of the most widely studied issues in the specialised literature. Economic growth highlights those changes that occur in enhancing macroeconomic results that are not expressed independently, but in close connection with its determinants. This article aims at modelling the economic growth of the member states of the European Union in relation to the economic freedom index and the index of economic progress. We consider the following objectives: the study of the intensity of relationships between GDP per capita and index of economic freedom on one hand, and social progress index on the other; modelling growth relative index of economic freedom and social progress index for the EU Member States Union. To investigate these topics, we have used descriptive analysis, analysis of variance, correlation analysis, and multiple regression analysis. We have developed a multiple regression model to study the influence that the index of economic freedom and of the social progress index have on the growth rate of GDP per capita in countries which have the status of member the European Union. Through variance analysis, we have concluded that there are significant differences among the average GDP per capita in the European countries according the membership of the European Union.

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Section: Literature Reviewmentioning

confidence: 99%

Modelling Economic Growth Based on Economic Freedom and Social Progress

2015

EJSD

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“…Because legal systems were transplanted throughout the world through the colonization efforts of a small number of Western European nations, legal tradition has been used as an instrument for institutions by researchers (e.g., Berggren & Jordahl, 2006;Faria & Montesinos, 2009). It is plausibly a valid exogenous instrument for institutions so long as legal tradition only impacts development through institutions and only former colonies that inherited a legal system from their colonizer are included in the sample.…”

Section: Theoretical Foundations For Identifica-tion Strategymentioning

confidence: 99%

Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective

et al. 2017

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Existing literature suggests that either colonial settlement conditions or the identity of colonizer were influential in shaping the post-colonial institutional environment, which in turn has impacted long-run economic development. These two potential identification strategies have been treated as substitutes. We argue that the two factors should instead be treated as complementary and develop an alternative and unified IV approach that simultaneously accounts for both settlement conditions and colonizer identity to estimate the potential causal impact of a broad cluster of economic institutions on log real GDP per capita for a sample of former colonies. Using population density in 1500 as a proxy for settlement conditions, we find that the impact of settlement conditions on institutional development is much stronger among former British colonies than colonies of the other major European colonizers. Conditioning on several geographic factors and ethno-linguistic fractionalization, our baseline 2SLS estimates suggest that a standard deviation increase in economic institutions is associated with a three-fourth standard deviation increase in economic development. Our results are robust to a number of additional control variables, country subsample exclusions, and alternative measures of institutions, GDP, and colonizer classifications. We also find evidence that geography exerts both an indirect and direct effect on economic development.

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“…The same methodology is also popular as a robustness check in cross-section studies that use IV estimation. For example, Crowe (2010) uses it to estimate the relationship between IT adoption and the quality of private sector forecasts, Faria and Montesinos (2009) to estimate the relation between growth, income level and freedom indexes; and Alcala and Ciccone (2004) for the link between trade and productivity. Other papers use a first-stage test of the F -statistic check with a critical value of 10.…”

Section: Literature Reviewmentioning

confidence: 99%

Testing for weak identification in possibly nonlinear models

Inoue,

Rossi

2011

Journal of Econometrics

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Does economic freedom cause prosperity? An IV approach

Abstract: Economic freedom, Prosperity, Policies, Institutions, Instrumental variables, O1, O43,

Cited by 105 publications

References 61 publications

Modelling Economic Growth Based on Economic Freedom and Social Progress

Modelling Economic Growth Based on Economic Freedom and Social Progress

Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective

Testing for weak identification in possibly nonlinear models

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