Economic Freedom Of The World Research Articles

Entrepreneurial Traits, Institutions, and the Motivation to Engage in Entrepreneurship

Using data from the Global Entrepreneurship Monitor (GEM) and the Economic Freedom of the World (EFW) index for 47 countries from 2002 to 2012, we study the multi-level relationship between entrepreneurial traits, market institutions, and individuals’ decision to engage in entrepreneurial action. Our results, which are based on a multi-level fixed-effects regression methodology, suggest that pro-market institutions nurture opportunity- motivated entrepreneurship (OME) on the one hand and reduce necessity- motivated entrepreneurship (NME) on the other. Our multi-level framework furthermore allows us to test the interaction between the macro-level institutional context and the micro-level entrepreneurial traits, attitudes, and behavior. In this respect, we find that entrepreneurs’ knowledge and alertness to new opportunities are more likely to promote OME and less likely to encourage NME, but the strength of the relationship depends on the institutional context. In addition, pro-market institutions seem to exacerbate the negative effect of risk aversion on the decision to start a new venture. These results provide direct evidence that institutions not only channel individual effort to productive entrepreneurial activities, but also enable individuals to more effectively use their entrepreneurial knowledge, skills, and alertness to start new ventures.

The Rise and Decline of Nations: The Dynamic Properties of Institutional Reform

While it is now well-established in the literature that countries with better policies and institutions, as measured by the Economic Freedom of the World (EFW) index, have better outcomes in terms of prosperity, growth, and measures of human well-being. However, we know little about the process of institutional reform — that is why and how country policies undergo major changes either upward or downward in their levels of economic freedom. This research attempts to provide a systematic overview of this process, by uncovering what the data really show about this transition process. Institutional declines occur more abruptly than institutional improvements, and free trade appears to be a key ‘first mover’ in cases of large institutional change.

Relationship of the youth unemployment and determinants of the labour market in the Balkan countries

Balkan countries are facing with a large number of unemployed young people. There is no doubt that financial crises have the biggest influence on the youth labour market. The remainder of this paper is presenting the research results showing the correlation between the unemployment rate (among youth and adults) and the determinants of the labour market in order to determine whether there is a difference in the impact of labour market indicators on the unemployment rates by gender and age. The study focuses on 11 Balkan countries in the period from 2008 to 2014. The data were collected from the Fraser Institute research specifically from “The Economic Freedom of the World: 2016 Annual Report”.

Give me liberty and give me control: Economic freedom, control perceptions and the paradox of choice

We explore the relationship between individual control perceptions and the degree to which a country's institutions and policies are consistent with the principles of economic freedom. Using data from the World Values Surveys (WVS) and the Economic Freedom of the World (EFW) index, we find that people living in more economically free countries are more likely to perceive greater control over their lives. This effect is not diminishing at higher levels of economic freedom. One possible channel that explains this relationship is the perception of procedural fairness and social mobility. Decomposing the EFW index, we further find that the area of sound money is what drives the results.

Does institutional quality in developing countries affect remittances?

There is some empirical evidence showing that remittances, on average, were about 0.5 percent of GDP in countries with a corruption index higher than the median level, compared to 1.9 percent in countries with a level of corruption lower than the median. It is also arguable, that an improvement in economic institutions would facilitate economic freedom and in turn, reduce the costs of transactions associated with remittances in recipient countries. The quality of institutions in developing countries therefore, could be an important determinant of remittances, which are now considered an essential source of external finance in these countries. Thus, this paper explores the role of institutions in driving the flow of remittances to developing countries. The study uses a sample of 90 countries, and data from the World development Indicators (WDI) and Economic Freedom of the World (EFW) indicators databases. The paper estimates both static and dynamic representations of a reduced form model for the determinants of remittances. The static panel models are estimated using the fixed effects estimator, whereas the dynamic models, represented by autoregressive-distributed lag models, are estimated using a generalized method of moments (GMM) estimator. The results show that an improvement in the quality of institutions in charge of the conduct of monetary policy has a positive impact on remittances, and that this impact increases with the quality of such institutions. The estimates also show that an improvement in the operations of institutions of government leads to an increase in the inflow of remittances, which suggests that a decrease in direct government control or participation in the private sector has positive impact on remittances. Sound monetary policy and an effective government are critical to economic freedom, and these results seem to suggest that migrants tend to send remittances in order take advantage of macroeconomic environments that are favorable to better economic performance. Furthermore, the findings provide evidence, albeit a weak one, which suggests that an improvement in the legal system and property rights may be associated with an increase in remittances, but that the effect is lower for countries with an index value greater than the median level. Ergo, to the extent that remittances have become an important source of external finance, policies promoting sound and accountable local institutions should be a priority for policy makers in developing countries.

An ordinal ranking of economic institutions

ABSTRACTWe provide the first ranking of countries’ economic institutions using an ordinal methodology. Using the five areas of the Fraser Institute’s Economic Freedom of the World (EFW) index, we find that final rankings of a country’s institutions are sensitive to the importance-ordering of Area 1 (Size of Government). When Areas 2–5 are in the most important position, we find that there is no significant difference between the EFW rankings and our rankings. When Area 1 is placed in the most important position, however, a number of European countries with large welfare states but good governance do poorly.

Aggregate Demand Shortfalls and Economic Institutions

Political instability is often exacerbated in periods of aggregate demand shortfall, with both short and long-term implications for economic institutions. It has been conjectured that inadequate policy responses to recessions may be inimical to free economic institutions. This paper uses the Economic Freedom of the World index as its measure of economic institutions, and finds that the change in economic freedom in the following five, ten, and fifteen years is negatively impacted by an aggregate demand shortfall as measured by negative NGDP growth. The result is (largely) robust upon the exclusion of the monetary policy variables from Economic Freedom of the World, but is not robust if economic institutions are measured as trade openness.

Give Me Liberty and Give Me Control: Economic Freedom, Control Perceptions and the Paradox of Choice

We explore the relationship between individual control perceptions and the degree to which a country’s institutions and policies are consistent with the principles of economic freedom. Using data from the World Value Surveys and the Economic Freedom of the World (EFW) index, we find that people living in more economically free countries are more likely to perceive greater control over their lives. This effect is not diminishing at higher levels of economic freedom. One possible channel that explains this relationship is the perception of procedural fairness and social mobility. Decomposing the EFW index, we further find that limited government, sound money and regulatory freedom are all positively associated with control perceptions.

What Do Recent Trends in Economic Freedom of the World Really Tell Us?

What Do Recent Trends in <i>Economic Freedom of the World</i> Really Tell Us?

The Impact of the Economic Freedom on National Competitiveness in the Main Economic Power Centres in the World

This paper's goal is to analyze if national competitiveness is influenced by economic freedom and to find the nature of this influence. Analyzing data from Global Competitiveness Report and Economic Freedom of the World, it is revealed the existence of a positive connection, the level of economic freedom significantly influencing the competitiveness of selected countries. The regression analysis shows that countries rated as highly economically free are also perceived as being high competitive. The reasearch proved that standard of living, rate of employment, productivity, commercial equilibrium, national attractiveness, ability of objective implementation, are direct determined by economic freedom.

IT'S A SMALL WORLD AFTER ALL: INTERNET ACCESS AND INSTITUTIONAL QUALITY

Using a panel of up to 114 countries covering the years 1990 through 2010, we estimate the effect of Internet use on changes in countries' Economic Freedom of the World (EFW) scores. The point estimates suggest that the marginal effect is generally positive. However, starting from above‐average EFW scores (&gt;7.7 out of 10; examples in 2010 include the UK, Switzerland, and Hong Kong) the marginal effect turns negative. Taking this interaction into account, the marginal effect is positive and statistically significant for countries starting at initial EFW scores of around 6 or less. Examples of countries with 2010 EFW scores near this threshold include China, Nigeria, and Pakistan. We discuss mechanisms that potentially generate this conditional relationship between Internet use and institutional change. (JEL O10, O43, P48)

Guesstimating is Superior to Omitting: A Better Way of Addressing Sparse Data in &lt;I&gt;Economic Freedom of the World&lt;/I&gt;

Economic Freedom of the World, an economic index published by the Fraser Institute, has seen wide use inside and outside academia. Certain data issues arise, however, when complete data are unavailable. This paper proposes to mitigate or eliminate many of these issues by filling in the missing values using estimates derived from four regression models.

Cross-border acquisitions of state-owned enterprises

We examine the decision of private sector enterprises from developed countries to acquire state-owned enterprises (SOEs) abroad. Using a sample of US firms buying targets abroad between 1987 and 2009, we find that bidders of SOE fare worse than bidders of non-SOE both in terms of stock price and operating performance. We also find that the quality of the target country location – as captured by the Economic Freedom of the World (EFW) Index – greatly influences the choice of SOE targets. Interestingly, the quality ranking of the target country location on the EFW Index and the performance of the bidder of a SOE target are inversely related. Our findings imply that the characteristics of the location of the target firm affect bidders’ choice of targets in international mergers and acquisitions; otherwise, acquiring non-SOEs is more lucrative. Furthermore, either limiting conditions in the business environment force managers to work harder to generate more wealth, or in weak legal and business environments buying targets with ties to the government yields extra wealth. Our findings are highly relevant within the international business literature as they influence the choice of foreign market entry mode.

Evaluating Alternative Measures of Institutional Protection of Private Property and Their Relative Ability to Predict Economic Development

Economic theory and a growing body of empirical literature suggest that private property rights are an important determinant of economic development. In this paper, four commonly used measures of institutional protection of private property rights are assessed, including their relative ability to predict the level of GDP per capita. The risk of expropriation measure from the International Country Risk Guide, the rule of law measure from the World Governance Indicators, and the property rights index from the Economic Freedom of the World exert a similar and robust positive impact on the level of economic development. The executive constraints measure from Polity IV exerts a much smaller impact, and is sensitive to the model specification. The relative strengths and weaknesses of each measure are also addressed. The analysis provides researchers with guidance on selecting an appropriate measure of private property institutions for studies of economic performance.

The Impact of Economic Inequality on Economic Freedom

This paper tests the hypothesis that the presence of economic inequality may lead to erosions of economic freedom. Using Economic Freedom of the World as a measure of free economic institutions, it finds that a one standard deviation increase in the gini coefficient reduces the presence of free economic institutions by 0.18 standard deviations. This effect is modest but not at all trivial, and the magnitude of the effect may be especially important in increasing the size of government. Surprisingly, the evidence is mixed for the effect of inequality on regulation, with modest evidence suggesting it may improve the regulatory environment. While many methods of reducing economic inequality involve restrictions on economic freedom, this evidence underscores the importance of stressing reforms free market proponents are confident will mitigate inequality.

Clusters of economic freedom

This article uses K-means clustering to group countries using the information from the five areas of the Economic Freedom of the World (EFW) index. The resulting clusters of countries are similar but not identical to quartile groupings found using the overall EFW index. Simple comparisons of socio-economic outcomes along the one-dimensional EFW index yield different results compared with the multidimensional-based country clusters. In particular, social democratic market economies appear to outperform liberal market economies using these simple comparisons.

Capitalism and labor shares: A cross-country panel study

We examine the empirical relationship between the institutions of economic freedom and labor shares in a panel of up to 93 countries covering 1970 through 2009. We find that a standard deviation increase in the Fraser Institute's Economic Freedom of the World (EFW) score is associated with about a 1/3 standard deviation increase in a country's labor share. Starting from the sample mean labor share in our panel, this amounts to about 4.26percentage points. This relationship is robust to considering OECD and non-OECD samples separately. It is also (both qualitatively and quantitatively) robust to controlling for differences in human capital levels, labor productivity, trade union density, and international economic flows. Breaking the EFW into its individual component areas, the regulation of credit, business and labor appears to be the most important source of the positive EFW–labor share relationship.

ECONOMIC FREEDOM OF THE WORLD: AN ACCOUNTING OF THE LITERATURE

The Economic Freedom of the World (EFW) index was first produced by Gwartney, Block, and Lawson (Economic Freedom of the World: 1975–1995; 1996) and has been updated annually since. During this period, the EFW index has been cited in hundreds of academic articles. Here, we provide an accounting and description of this literature. Of 402 articles citing the EFW index, 198 used the index as an independent variable in an empirical study. Over two‐thirds of these studies found economic freedom to correspond to a “good” outcome such as faster growth, better living standards, more happiness, etc. Less than 4% of the sample found economic freedom to be associated with a “bad” outcome such as increased income inequality. The balance of evidence is overwhelming that economic freedom corresponds with a wide variety of positive outcomes with almost no negative tradeoffs. (JEL P0, O43)

Capitalism and Labor Shares: A Cross-Country Panel Study, 1970 to 2010

We examine the empirical relationship between the institutions of economic freedom and labor shares in a panel up to 93 countries covering 1970 through 2009. We find that a standard deviation increase in the Fraser Institute’s Economic Freedom of the World (EFW) score is associated about 1/3 standard deviation increase in a country’s labor share. Starting from the sample mean labor share in our panel, this amounts to about 4.26 percentage points. This relationship is robust to considering OECD and non-OECD samples separately. It is also (both qualitatively and quantitatively) robust to controlling for differences in human capital levels, labor productivity, trade union density, and international economic flows. Breaking the EFW into its individual component areas, the regulation of credit, business and labor appears to be the most important source of the positive EFW-labor share relationship.

It’s a Small World after All: Internet Access and Institutional Quality

Using a panel of up to 114 countries covering the years 1990 through 2010 we estimate the effect of Internet use on changes in countries’ Economic Freedom of the World (EFW) scores. The point estimates suggest that the marginal effect is generally positive. However, starting from above-average EFW scores (> 7.7 out of 10; examples in 2010 include the UK, Switzerland, and Hong Kong) the marginal effect turns negative. Taking this interaction into account, the marginal effect is positive and statistically significant for countries starting at initial EFW scores of around 6 or less. Examples of countries with 2010 EFW scores near this threshold include China, Nigeria, and Pakistan. We discuss mechanisms that potentially generate this conditional relationship between Internet use and institutional change.