Increases In Economic Freedom Research Articles

Geopolitical risk and tourism in Turkey

PurposeThe purpose of this paper is to show the effect of Turkey's geopolitical risk on the number of international tourist arrivals to the country. When Turkish economy in 2019 is analyzed, it is seen that the share of tourism in national income is 11%. For this reason, national economy is significantly affected by changing of the number of international tourist arrivals. Security problems are an important variable affecting tourist arrivals.Design/methodology/approachThe paper focused on secondary data for the period 2000–2019 for macroeconomic variables. Accordingly, the number of international tourist arrivals was added as a dependent variable, geopolitical risk as an independent variable, gross domestic product (GDP) and economic freedom index as control variables and inflations as an external variable to the model. The residual augmented least squares–the autoregressive distributive lag (RALS-ADL) cointegration test and the dynamic ordinary least squares (DOLS) coefficient estimator were used. It allows for more robust results to be obtained when the residues do not have a normal distribution.FindingsThe RALS-ADL cointegration test result shows that there is a cointegration relationship between variables at a 1% significance level. Moreover, the DOLS coefficient estimator results indicate that an increase in economic freedom and GDP increase the number of international tourists, whereas an increase in the Geopolitical Risk Index and inflation decreases the number of international tourism arrival. It can be said that tourists consider the security and economic stability of the host country when making tourism decisions.Originality/valueTurkey is one of the most risky developing countries, as well as one of the most popular travel destinations. When the literature is examined, it has been found that studies for Turkey usually determine the relationship between the variables for a short period of time. However, to ensure sustainable growth and environment of confidence, the long-run relationship between variables should be determined so that policymakers can make more impactful decisions. Therefore, the aim of this study is to make a literature contribution, taking into account the long-term effects. In addition, unlike other studies, this study fills the gap in literature using the RALS-ADL cointegration test, which produces robust estimators.

Underperforming reformers: Examining disappointing cases of economic reforms

AbstractWhile pro‐market economic institutions are a strong and causal predictor of economic development, such institutions are not expected to have the same impact across countries. Furthermore, there are actually a few instances where countries that enacted market‐friendly reforms had negative economic growth soon after. Examining 49 cases of large and sustained increases in economic freedom over a five year window, we find 10 cases that were followed by low/negative economic growth thereafter. We consider various potential determinants of failed reforms by comparing different measures between the successful and failed reforming countries. Our strongest evidence points to the following as plausible reasons for failed reforms: culture (high levels of power distance, low levels of individualism, and low levels of generalized trust), areas of economic freedom that countries reformed (less focus on sound monetary policy, more focus on limiting the size of government, and more variance between the five areas), and autocratic political institutions.

Economic freedom and growth, income, investment, and inequality: A quantitative summary of the literature

AbstractThis study examines the published estimates on the relationship between economic freedom, as measured by the Economic Freedom of the World (EFW) index, and measures of growth, income, investment, and inequality. We obtained 696 point estimates for economic freedom‐growth from 54 articles, 386 estimates for economic freedom‐income from 23 articles, 343 estimates for economic freedom‐investment from 32 articles, and 759 estimates for economic freedom‐inequality from 26 articles. The published estimates support the view that economic freedom is positively related to growth, income, and investment. The level of economic freedom appears to be simply unrelated to inequality, though increases in economic freedom may correlate with higher inequality.

Inflation and income inequality linkages: do institutions matter?

ABSTRACT The effect of inflation on income inequality is uncertain in both theoretical and empirical literature. This article investigates whether institutions matter in this relationship, using the corruption perception index and economic freedom index as representatives. The article focuses on the two-step system generalized method of the moments results from 2012 to 2018 for 58 countries; however, for the sake of comparing results, pooled ordinary least squares, fixed effect estimations and difference generalized method of moments are employed. The findings suggest that inflation has a robust negative effect on income inequality. Good institutions, low corruption and high economic freedom levels lead to income inequality, and their overall effect shows that (i) a decrease in corruption and an increase in economic freedom cause the effect of high inflation turn positive on income inequality, (ii) high inflation rates eliminate good institutions’ reducing effect on income inequality. The study contributes to the limited literature on the relationship between inflation and income inequality. It distinguishes itself from the literature by examining the role of institutions in this relationship by using corruption and income inequality together.

Can Markets Improve Recycling Performance? A Cross-Country Regression Analysis and Case Studies

Can recycling reduce negative externalities created by landfills? Environmentalists argue yes; however, the efficiency of recycling will be institutionally contingent. Entrepreneurs will face less barriers to profit from recycling in countries with more economic freedom. Additionally, recycling conducted by private firms will be more cost-effective and have higher rates of innovation in recycling technology relative to a nationalized industry. The purpose of this study is to test these claims. First, a two-way fixed effects regression model is estimated using panel data from 34 countries over the years 2000 to 2019. Our regression results show that increases in economic freedom have a positive effect on recycling rates, independent of related policy effects. Second, using two brief case studies of the Republic of Korea and Taiwan, we show how the inefficiencies of bureaucratic management suggest that private industry can be a less costly solution to encouraging recycling. The empirical results and case studies strongly suggest that increases in economic freedom can be an important mechanism for increasing recycling rates, and private industry involvement in existing recycling programs can limit unnecessary costs.

Does economic freedom lighten the blow? Evidence from the great recession in the United States

The Great Recession led to a large decline in economic activity throughout the entire United States with significant variation in its severity across regions. Our paper examines the role of economic freedom in explaining these differences at the metropolitan statistical area (MSA) level. We use the Stansel (2013; 2019) MSA-level economic freedom index to analyze the relationship between institutional quality and economic outcomes throughout the crisis period. Using a panel dataset of 382 MSAs from 2002 to 2012, we find that economic freedom is associated with enhanced economic outcomes – lower unemployment rates, more employment per 100 persons, and higher income per capita. This holds true even when examining a cross-section of MSAs using data from the crisis period alone. We supplement these findings with a matching analysis where we find that MSAs that experienced meaningful increases in economic freedom in the five-year period before the Great Recession (2002–2007) had quicker recoveries – in terms of unemployment rates and income – than their matched counterfactuals from 2007 to 2012. Overall, our findings suggest that economic freedom did “lighten the blow” from the Great Recession.

Does aid cause changes in economic freedom?

AbstractWe examine whether aid affects recipient countries' economic freedom. The existing empirical literature examining this relationship has found conflicting results. However, all of these existing studies have struggled to employ plausible identification strategies to find a causal relationship between aid and economic freedom. Our study employs matching methods to better estimate the causal relationship between aid and economic freedom. We find that there is no meaningful causal impact of overall aid on recipient countries' economic freedom. There is some evidence that, specifically, large and sustained increases in “governance‐specific” aid lead to increases in economic freedom, but even then the effects appear to be quantitatively modest.

The Vietnamese entrepreneurship paradox: how can entrepreneurs thrive without political and economic freedom?

Entrepreneurship and democracy are often considered complementary, but recent evidence points to a paradox that entrepreneurial activities have increased in undemocratic contexts. Exploring economic and political freedoms, this paper investigates the development of entrepreneurship in Vietnam, an economy characterised by low economic and very low political freedoms. It suggests changes in economic freedom over time influence opportunity perceptions and activities more than absolute levels. We identify key aspects of how culture and institutions have changed, which have been conducive to entrepreneurship. Overall, we show how even small increases in economic freedom stimulate entrepreneurship, even in the absence of political freedom.

Determinants of Foreign Trade in Nepal

This study examines the determinants of foreign trade in Nepal. Exports and imports of Nepal are the dependent variables. The selected independent variables are GDP of Nepal, GDP of trading partners, real effective exchange rate, distance, regional economic integration, per capita GDP of Nepal, per capital GDP of trading partners, economic freedom of Nepal and economic freedom of trading partners. The study is based on secondary data of 21 trading partners of Nepal with 210 observations for the period of 2010 to 2019. The data are collected from the Direction of Trade Statistics (DOTS) dataset of International Monetary Fund (IMF), World Development Indicator database of World Bank, CEPII gravity data set and the Heritage Foundation. The regression models are estimated to test the impact of various variables on the exports and imports of Nepal. The study showed that GDP of Nepal has a positive impact on exports of Nepal. It indicates that increase in GDP of Nepal leads to increase in exports of Nepal. Similarly, GDP of trading partners has a positive impact on exports. It indicates that increase in GDP of trading partners leads to increase in exports of Nepal. Likewise, distance has a negative impact on exports. It indicates that greater the distance with the trading countries, lower would be the exports of Nepal to those trading partners. Moreover, real effective exchange rate has a positive impact on exports. It indicates that increase in real effective exchange rate leads to increase in exports. In addition, SAFTA membership has a positive impact on exports. It indicates that SAFTA membership leads to increase in exports of Nepal. Furthermore, the study revealed that economic freedom index of trading partners has a positive impact on exports. It indicatesthat increase in economic freedom in dex of trading partners leads to increase in exports of Nepal. In addition, the study shows that GDP of Nepal has a positive impact on imports of Nepal. It indicates that increase in GDP of Nepal leads to increase in imports of Nepal.Similarly, GDP of trading partners has a positive impact on imports. It indicates that increase in GDP of trading partners leads to increase in imports of Nepal. Likewise, distance has a negative impact on imports. It indicates that greater the distance with the trading countries, lower would be the imports of Nepal from those trading partners. Similarly, real effectiveexchange rate has a positive impact on imports. It indicates that increase in real effective exchange rate leads to increase in imports. The study also reveals that GDP per capita differential has a positive impact on imports. It indicates that higher the GDP per capita differential, higher would be the imports of Nepal.

Does economic freedom boost growth for everyone?

AbstractWhile the association between economic freedom and long‐term economic growth has been well documented, the parallel research literature on the distributional consequences of economic freedom is full of conflicting findings. In this paper, we take a step toward reconciling these two bodies of literature by exploring the within‐quintile growth consequences of changes in three separate elements of economic freedom: the size of government, institutional quality and and policy quality. Although the distributional consequences of increases in economic freedom are theoretically ambiguous, we find evidence that economic freedom affects all parts of the income distribution equally, in addition to indications that the growth effects are largest for the poorest and richest quintiles.

İSLAM ÜLKELERİNDE EKONOMİK ÖZGÜRLÜĞÜN GİRİŞİMCİLİK ÜZERİNDEKİ ETKİSİ

The level of economic freedom which is expressed as institutions and policies based on market economy is one of the most significant indicators of entrepreneurial activities since the increase in economic freedom has caused a decrease in transaction costs preventing the entrepreneurial activity. The aim of this study is to analyze the effect of economic freedom on entrepreneurship in Islamic countries by using the data belonging to years between 1995 and 2019. In the study, self-employment rate has been used as entrepreneurial criterion; gross domestic product per capita, money supply, import and inflation have been used as the indicators of the entrepreneurship; economic freedom index presented by The Heritage Foundation and its 9 subcomponents out of 12 (property rights, government integrity, government spending, tax burden, business freedom, monetary freedom, trade freedom, investment freedom and financial freedom) have been used as the economic freedom criterion. According to the findings of this study, entrepreneurship has been affected positively by economic freedom and property rights, government integrity, government spending, monetary freedom, investment freedom and financial freedom and negatively by tax burden and trade freedom.

Economic freedom and migration: A metro area‐level analysis

AbstractWe examine the determinants of intra‐U.S. population migration at the metropolitan area level (MSA), with an emphasis on the presence of policies that are consistent with economic freedom. We are the first to produce a multivariate regression analysis of migration and economic freedom at the local level. Combining a 1993–2014 unbalanced panel of MSA‐to‐MSA migration data from the Internal Revenue Service with a new economic freedom index for U.S. metropolitan areas, we find that a 10% increase in economic freedom of a destination MSA, relative to the economic freedom of an origin MSA, was associated with a 27.4% increase in net migration from the origin MSA to the destination MSA. If we use mean net migration flows as a benchmark, we would expect a 10% increase in relative economic freedom to increase net migration to the destination MSA by 22 workers per year from each other MSA.

The impact of economic freedom on foreign portfolio investments

The present phenomena of globalization and market liberalization have attracted considerable attention from foreign investors. Several member states of the Caricom Single Market and Economy are becoming heavily dependent on foreign investments. Consequently, this study intends to investigate the effect of economic freedom on foreign portfolio investments in the case of the Caricom Single Market and Economy. For this purpose, this study has used data from 2012 to 2016. The results of the stationarity test showed that data of all variables considered in the study are stationary at level. Moreover, the fixed-effect model better modeled the data as suggested by the results of the Hausman test. Based on the results of the fixed effect models, economic freedom has a significant and positive effect on the total foreign portfolio investments. Therefore, an increase in economic freedom among the Caricom Single Market and Economy member countries will attract more investors to invest in their country stocks and debt instruments. Furthermore, for the robustness of the results, the study has also estimated a separate regression model for foreign debt portfolio investments and foreign equity portfolio investments which also support the baseline regression results and showed a significant and positive effect of economic freedom on both foreign debt and foreign equity portfolio investments. This study suggests that the member countries of the Caricom Single Market and Economy improve their economic freedom which will attract foreign investors to invest in their countries.

The Impact of Economic Freedom on Economic Growth? New European Dynamic Panel Evidence

This paper analyzes the impact of economic freedom along with traditional economic factors on economic growth for a panel of European countries. The growth of the gross domestic product was observed over a twenty-year time period on a sample of 43 developing and developed countries. Based on a robust dynamic panel setting, we conclude that increases in economic freedom as expressed by the Index of Economic Freedom/Heritage Foundation (but not its levels) are related to economic growth. The EU membership status either had no effect or it curbed the effect of the economic freedom on growth. We also find that the subprime economic crisis of 2008–2009 exerted a negative impact on the growth of European economies.

The Efficient Corruption Hypothesis and the Dynamics Between Economic Freedom, Corruption, and National Income

Corruption is an endemic problem in many developing economies. As a result, economists and political scientists have extensively studied corruption and its relationship to economic prosperity. An important mediating factor is the level of economic freedom. Determining causality is difficult as income, economic freedom, and corruption are arguably endogenous. We explicitly model this endogeneity using a panel Vector Auto Regression (pVAR) framework. The pVAR models we estimate are able to explicitly model this endogeneity better than the single-equation panel data models previously used in the literature. We have three primary data sources. Gross Domestic Product (GDP) per capita from the World Bank measures national income. Country-level corruption data comes from the World Bank's Control of Corruption database. The source of our country-level measure of economic freedom is the Fraser Institute's Economic Freedom of the World annual report. Our data set runs from 2002-2013 for over one hundred countries. We begin our results by finding that income, corruption, and economic freedom are integrated, but not cointegrated, thus a pVAR is appropriate. A one-time increase in corruption has a negligible effect on economic freedom and national income. An increase in economic freedom decreases corruption and increases GDP per capita. Increases in national income have no meaningful effect on corruption but have a small and positive effect on economic freedom. We then split our sample to see if there is a difference in results between high economic freedom countries and low economic freedom countries and do not find a difference. In summary, economic freedom decreases corruption and improves the economy and these results hold regardless of the level of economic freedom or whether corruption is absolute or relative. The policy implications from our research are straightforward. To the extent that resources to devote towards corruption are scarce, a focus on improving economic freedom not only leads to less corruption, but higher national income.

Rewards of reforms: Can economic freedom and reforms in developing countries reduce the brain drain?

The objective of this paper is to investigate the impact of economic freedom on brain drain from developing countries to rich countries. Previous literature on brain drain has examined social, political and economic determinants. However, no study in the literature so far has studied this proposed relationship. We employ the Economic Freedom Index sourced from the Fraser Institute as a proxy for economic freedom and the rate of moderately skilled and highly skilled emigration functions as a proxy for brain drain. Our sample consists of 142 countries covering the period 1990–2010. We estimate the results using a two-way fixed effects regression estimator. The results show that an increase in economic freedom is strongly associated with lower levels of brain drain from developing countries to rich countries. In addition, we find that long-term benefits associated with more economic freedom outweigh short-term costs of economic reforms when it comes to restricting brain drain.

Does Economic Freedom Matter For CO2 Emissions? Lessons From Africa

The increase in the concentrations of carbon dioxide (CO2) in the atmosphere has become one of the major issues worldwide. This increase has also drawn the attention of many financial and economic researchers to empirically investigate the determinants of CO2 emissions and environmental quality. However, many studies ignore the influence of economic freedom when investigating the determinants. This gap in the literature has motivated this study to examine the environmental impacts of economic freedom and whether these effects differ across various income groups. This study also offers what we know as the first study on the effect of unemployment rate on environmental quality. In order to strengthen the explanatory power of the estimation results, we employ electricity power consumption and GDP per capita as our control variables. Using the system generalized method of moments (GMM) estimator with a panel dataset for 24 African countries over 1995 – 2013 period, our results show that increases in economic freedom, proxied by trade freedom index, business freedom index, freedom from corruption and fiscal freedom index, increase environmental quality, measured using CO2 emissions. Our finding that fiscal freedom exerts a negative effect on CO2 emissions remained unchanged with the sample split into different income groups (low income, lower-middle, and upper-middle income countries). This suggests that tax reduction policies can be implemented to reduce CO2 emissions. At the same time, our further analyses, which are based on the different income groups, show that the effects of business freedom, freedom from corruption, and trade freedom on CO2 emissions differ across the various income groups. Specifically, the results indicate significant negative impacts of freedom from corruption and business freedom on CO2 emissions only for upper-middle income countries, while trade freedom is significantly negative only for lower-middle income countries, implying that the impacts of the variables depend on the income levels of the countries. The results also show that unemployment rate has no significant negative effect on CO2 emissions in lower-middle and upper-middle income countries, yet it significantly reduces CO2 emissions in low income countries. Thus, in order to have a robust understanding of the effects of economic freedom and unemployment rate on CO2 emissions, it is important to use a panel of more homogeneous economies. Our findings suggest that country-specific (or country-income based) environmental policies should be encouraged in order is to win the war against CO2 emissions and by extension environmental degradation.

Federal Regulation, Job Creation, and the Moderating Effect of State Economic Freedom: Evidence From the United States

Regulation has been shown to hinder employment and entrepreneurship, but regional variation is rarely explored. Engaging the theory of market-preserving federalism, we argue that regional economic freedom attenuates the negative influence of national regulation on net job creation. Using U.S. data, we find that regulation destroys jobs on net, but regional economic freedom moderates this effect. In regions with average economic freedom, a one percent increase in regulation results in 14 net jobs destroyed. However, a standard deviation increase in economic freedom attenuates this relationship by four fewer jobs destroyed. This moderation accrues strictly to older firms; regulation usually harms young firm job creation, and economic freedom does not attenuate this relationship.

ECONOMIC FREEDOM AND INCOME LEVELS ACROSS U.S. STATES: A SPATIAL PANEL DATA ANALYSIS

There is a large literature estimating the effect of economic freedom on economic growth or income levels. Most studies examine the relationship between economic freedom and growth or income levels for countries, while a few examine the relationship for U.S. states. Absent in the state‐level literature is consideration of the presence of spatial spillovers affecting the freedom‐income relationship. Neglecting to account for spatial autocorrelation can bias estimation results and therefore inferences drawn. We find evidence of a spatial pattern in real per‐capita gross state product (GSP) that affects nonspatial estimates of the freedom‐income relationship. Taking into account the direct and indirect effects of economic freedom on real per‐capita GSP, we find a 10% increase in economic freedom is associated with a 5% increase in real per‐capita GSP. (JEL E02, O47, R11)

An Examination of the Former Centrally Planned Economies 25 Years after the Fall of Communism

This report analyzes the changes in economic freedom, political institutions, and performance of 25 former centrally planned (FCP) economies following the collapse of communism. The degree of economic freedom among these countries varied considerably. The FCP countries with higher levels of economic freedom in 2015 as measured by the Economic Freedom of the World summary ratings tended to grow more rapidly, achieve larger increases in international trade, and attract more foreign direct investment than their counterparts with less economic freedom. Differences among the FCP countries in the protection of civil liberties, democratic political institutions, and administration of government with less corruption are also identified and analyzed. A regression model of economic growth during 1995-2015 for 122 countries was developed and used to examine the determinants of growth and the performance of the FCP economies relative to high-income and other developing countries throughout the world. Regression analysis was also used to analyze the life satisfaction measure of the World Values Survey. The regression analysis indicates that economic freedom exerts a strong positive impact on both the growth of per capita GDP and the life satisfaction of individuals. Finally, the economic freedom area ratings were used to identify strengths and weaknesses of the FCP economies. Most of the FCP countries registered substantial increases in economic freedom in the areas of size of government, access to sound money, international trade, and regulation. But they have failed to improve their legal systems, and several FCP countries have even experienced recent deteriorations in this area. While the FCP countries achieved impressive growth and closed the income gap relative to high-income countries during 1995-2015, without improvements in the legal area, it is unlikely that this progress will continue. The addendum provides additional details for ten countries that have made the transition from communism to markets most successfully.