Components of Economic Freedom and Growth: An Empirical Study

Abstract

The present study is an attempt to quantify relationships between development and disaggregated factors that constitute elements of economic in current terminology. The three main objectives of this paper are (1) to verify that the currently spreading belief that freedom helps (some would even say is essential for) growth has empirical foundations; (2) to identify those elements of freedom for which sufficient analyzable data exist that demonstrate a statistically significant relationship to growth; and (3) to indicate desirable directions for further research and policy implications. This attempt is now feasible owing to the meticulous work of the Fraser Institute team for over a decade, the results of which were recently published in Economic Freedom of the World 1975-1995, by James D. Gwartney, Robert Lawson, and Walter Block.' In that volume they identified, classified, assembled, and indexed data on freedom between the years 1975 and 1995. We fully agree with Gary S. Becker, the 1992 Nobel laureate, that research on the contribution of freedom to economic prosperity and growth ... has been hampered by incomplete and inadequate measures of freedom in life. This book helps fill the void with detailed measures.2 Reports from around the world strongly suggest that countries that have reduced the direct involvement of governments in activities show rising rates of growth. These reports often connect such an alleged relationship to policies of privatization and changes in laws that make the relevant countries more accommodating to foreign and domestic private business, as well as to other

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