Economic Freedom of the Russian Federation

Abstract

The role of economic freedom in national and sub-national development has been studied extensively in both cross-country and in cross-regional studies and used to explain differences in a wide array of economic outcomes. These findings motivated us to construct an index of economic freedom for the regions of the Russian Federation (EFRF). This paper presents the EFRF index and describes the methods and choices made during its construction. Additionally, to provide a glimpse into the possibilities of the newly constructed index of economic freedom, the final section of the paper presents growth regressions on time-series cross-section data of the Russian regions. We rely on quantile regressions to allow for parameter heterogeneity and reduce the influence of outlier observations. Results indicate that economic freedom influences growth in GRP per capita, income per capita, and monthly wages across the regions of Russia in different ways and that its effect also varies across the growth distribution. The results also suggest that greater economic freedom is beneficial for regions with relatively low rates of economic growth but may be unfavorable to growth when or where growth rates are already relatively high.