The moderating role of culture on the benefits of economic freedom: Cross-country analysis

Abstract

The implementation of pro-market policies and institutions is often suggested for enhancing a country's development. However, implementing pro-market policies and institutions has a mixed track record. Some have ascribed the bad results to the neglect of people's predispositions, often described as culture. In this study, we argue that successful implementation of pro-market policies and institutions requires that large parts of the population know how to use the resulting freedom in a way that can bring long term benefits. A panel analysis on a sample of 67 countries from 1970 to 2019 confirms this theoretical argument. We find that Long Term Orientation increases the effect of economic freedom on income per capita, whereas Uncertainty Avoidance weakens the positive relationship between economic freedom and income per capita. The policy implication is that the introduction of free market policies and institutions will particularly foster economic development in long-term oriented societies and in societies with low Uncertainty Avoidance.

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