Economic Freedom and Economic Growth: A Short-run Causal Investigation

The freedom and growth literature has consistently shown that nations which have fewer restrictions on private agents and transactions tend to higher levels of economic growth. It is less clear, however, whether freedom causes growth, growth causes freedom, or the two are jointly determined. To assess these possibilities, Granger-causality tests are performed on annual freedom indicators developed by the Heritage Foundation and national growth rates. The underlying component indexes, which include Trade Policy, Taxation, Government Intervention, Monetary Policy, Capital Flows and Foreign Investment, Banking, Wage and Price Controls, Property Rights, Regulation, and Black Markets, are also tested in addition to the summary freedom rating. The tests suggest the average level of freedom in a nation, as well as many of the specific underlying components of freedom, precedes growth. However, growth may precede one of the component indexes (Government Intervention), and no relationship is found to exist between growth and two of the indexes (Trade Policy and Taxation).economic freedom; economic growth; Granger-causality

Corruption and the Institutional Environment for Growth

Several cross-country studies have found that corruption is detrimental to economic growth, but the findings are not universally robust. We utilize the economic freedom index to examine if corruption can facilitate growth by allowing entrepreneurs to avoid inefficient policies and regulations when economic freedom is limited. Using regression analysis, we find that corruption is growth enhancing when economic freedom is most limited but the beneficial impact of corruption decreases as economic freedom increases. Not all areas of economic freedom affect the corruption-growth relationship equally. In particular, we find that when we analyze individual areas of economic freedom the beneficial effect of corruption disappears most quickly when the size of government and the extent of regulation decrease.Corruption; Economic Freedom; Growth

Has assistance from USAID been successful in promoting and sustaining democracy? Evidence from the transition economies of Eastern Europe and Eurasia

Foreign aid, especially official development assistance (ODA), has received increasing criticism in past decades. In particular, it has been put into question if and to what extent aid can help foster the aims for which it has been paid. In most cases, it seems that there is no discernable effect or even a negative effect of ODA on economic development. One reason for aid ineffectiveness may be seen in a lack of good governance on the side of the recipients. It has been argued that aid should concentrate more on creating better institutions. In the past 20 years, democracy promotion has become a pillar of USAID's mission and the funding for democracy and governance has steadily increased. The transition economies in particular have received special attention upon the fall of the Soviet Union. We assess the success of this aid by testing whether US aid is enhancing democracy in 26 transition countries. Using Freedom House Nations in Transit data, we find that in simple linear panel regressions aid has generally not been a significant factor in a country's overall democracy score. However, aid has significantly contributed to certain components of the democracy score, namely civil society, electoral process, judicial framework, and media independence. In addition, the impact of aid is found to depend on the number of years of past central planning. Countries having a history of less than 50 years of central planning had a significantly negative association to aid, whereas countries with more than 65 years of central planning benefited from greater aid.ODA, transition economies, democracy

SIZE OF THE MILITARY SECTOR AND ECONOMIC GROWTH: A PANEL DATA ANALYSIS OF AFRICA AND LATIN AMERICA

We estimate the influence of defense spending and military labor use on economic growth in African and Latin American countries. Our model integrates disparate implications from the defense economics literature into a Barro-style model of economic growth that controls for political and economic institutional variation across countries. Our panel data analysis of 44 countries in Africa and Latin America from 1975 to 1989 also controls for cross-country variation in lost human capital and public sector production inefficiencies. We find empirical evidence that the defense burden on economic growth is non-linear, with low levels of military spending increasing economic growth but higher levels of military spending decreasing growth. We also find evidence that the influence of military labor use on growth is non-linear, and exhibits a greater drag on economic growth in those countries with relatively higher levels of adult male education attainment.defense burden; economic growth

Crossing the threshold : an analysis of IBRD graduation policy

According to World Bank policy, countries remain eligible to borrow from the International Bank for Reconstruction and Development until they are able to sustain long-term development without further recourse to Bank financing. Graduation from the Bank is not an automatic consequence of reaching a particular income level, but rather is supposed to be based on a determination of whether the country has reached a level of institutional development and capital-market access that enables it to sustain its own development process without recourse to Bank funding. This paper assesses how International Bank for Reconstruction and Development graduation policy operates in practice, investigating what income and non-income factors appear to have influenced graduation decisions in recent decades, based on panel data for 1982 through 2008. Explanatory variables include the per-capita income of the country, as well as measures of institutional development and market access that are cited as criteria by the graduation policy, and other plausible explanatory variables that capture the levels of economic development and vulnerability of the country. The authors find that the observed correlates of Bank graduation are generally consistent with the stated policy. Countries that are wealthier, more creditworthy, more institutionally developed, and less vulnerable to shocks are more likely to have graduated. Predicted probabilities generated by the model correspond closely to the actual graduation and de-graduation experiences of most countries (such as Korea and Trinidad and Tobago), and suggest that Hungary and Latvia may have graduated prematurely -- a prediction consistent with their subsequent return to borrowing from the Bank in the wake of the global financial crisis.Economic Theory&Research,Emerging Markets,Banks&Banking Reform,Labor Policies,Debt Markets

Size of the Military Sector and Economic Growth: A Panel Data Analysis of Africa and Latin America

We estimate the influence of defense spending and military labor use on economic growth in African and Latin American countries. Our model integrates disparate implications from the defense economics literature into a Barro-style model of economic growth that controls for political and economic institutional variation across countries. Our panel data analysis of 44 countries in Africa and Latin America from 1975 to 1989 also controls for cross-country variation in lost human capital and public sector production inefficiencies. We find empirical evidence that the defense burden on economic growth is non-linear, with low levels of military spending increasing economic growth but higher levels of military spending decreasing growth. We also find evidence that the influence of military labor use on growth is non-linear, and exhibits a greater drag on economic growth in those countries with relatively higher levels of adult male education attainment

Winning probabilities in a pairwise lottery system with three alternatives

Summary. The pairwise lottery system is a multiple round voting procedure which chooses by lot a winner from a pair of alternatives to advance to the next round where in each round the odds of selection are based on each alternative's majority rule votes. We develop a framework for determining the asymptotic relative likelihood of the lottery selecting in the final round the Borda winner, Condorcet winner, and Condorcet loser for the three alternative case. We also show the procedure is equivalent to a Borda lottery when only a single round of voting is conducted. Finally, we present an alternative voting rule which yields the same winning probabilities as the pairwise lottery in the limiting case as the number of rounds of the pairwise lottery becomes large

An Economic Interpretation of Rhode Island’s 1788 Referendum on the Constitution

In their 1788 popular referendum, Rhode Island voters overwhelmingly rejected ratification of the Federal Constitution: 92 percent against and 8 percent for adoption. The town-by-town voter lists, correlated with tax and estate records, show that yea voters were significantly wealthier than “nay” voters. Available data also indicates that yea wealth was concentrated in personal estate rather than real estate. Both these findings support Charles Beard\u27s original economic interpretation of the Constitution. Our detailed data provides new evidence about town-level voters, supplementing the usual data Beard’s supporters and critics have used from state ratifying conventions and the Philadelphia constitutional convention. We trace the outlines of the scholarly debate, provide political and economic context for the Rhode Island referendum, report on our initial findings, and suggest further avenues of research and analysis

The Impact of Political Leaders' Profession and Education on Reforms

This paper analyzes whether the educational and professional background of a head of government matters for the implementation of market-liberalizing reforms. Employing panel data over the period 1970-2002, we present empirical evidence based on a novel data set covering profession and education of more than 500 political leaders from 73 countries. Our results show that entrepreneurs, professional scientists, and trained economists are significantly more reform oriented. Contrary, union executives tend to impede reforms. We also highlight interactions between profession and education with time in office and the political leaning of the ruling party