Global distribution and dynamics of economic freedom: Non-parametric approach

The paper exploits the distributional dynamics and structural changes in the endogenous distribution of economic freedom across countries over time by utilizing the Rosenblatt–Parzen Kernel density estimator compared to the original distribution based on the methodology proposed by the Heritage Foundation. We utilize the distribution of economic freedom as a tool to identify which policies enhanced the overall level of economic freedom. We develop the distribution of endogenous economic freedom by decomposing effects of economic freedom on the level of income per capita in IV–2SLS estimation framework for a panel of 134 countries to identify the effect of institutions of economic freedom on the level of per capita income. Structural estimates indicate that improvements in the monetary, fiscal, and labor freedom exert the strongest direct effect on the level of economic freedom and indirect effect on the level of real income per capita. Our study demonstrates considerable differences between the original and endogenous distributional dynamics of economic freedom over time. In exploiting the non-parametric setting of endogenous economic freedom, we identify a recent emergence of twin-peak distribution across countries where developing nations have improved the level of economic freedom considerably compared to the initial year.     

Endogenous economic freedom and the wealth of nations: evidence from a panel of countries, 1996–2011

Indexes of economic freedom measure the degree to which the policies and institutions of countries are supportive of economic freedom. The authors find a considerable scope for improvement in Index of Economic Freedom, created by Heritage Foundation, since not all components of index have equal effect on economic well-being. Contrary to Heritage methodology the authors tackle the aggregation bias and highlight that each index component contributes differently to the level of economic freedom and subsequently to the level of income per capita. The level of fiscal freedom and monetary freedom exert the strongest influence on the overall index of economic freedom. Authors present the new endogenous cross-country ranking of 135 countries from Instrumental Variable-Two Stage Least Squares (IV-2SLS) empirical specification which removes the inconsistencies arising from the arbitrary assumption of the equivalent effect of each component on the overall index and, hence, the level of real income per capita.     

The driving forces of the level and the growth rate of real per capita income in Indonesia

We investigate the driving forces behind the level and the growth rate in real per capita Gross Domestic Product (GDP) in Indonesia. The ultimate reasons and the proximate causes underlying Indonesia's economic growth since the mid-1960s are still unclear. In the literature there have been at least three ways of investigating the driving forces of economic growth in Indonesia, namely: growth accounting system, regression and causality. The difference and improvement in this article is that we employed a two-step bounds testing approach to cointegration, which has not been done before; it uses the endogenous growth model to consider 12 policy variables and two external factors that potentially affect per capita income, this number is more than that has been done before. The empirical results that we obtained using this two-step bounds testing approach help us draw policy implications that if or when implemented would be expected to increase the growth of real per capita income, as well as the welfare of the people of Indonesia. Economic growth in Indonesia is largely driven by government policy, so the ability to increase Indonesia's economic growth rate, in the long run, will largely depend on the implementation of appropriate government policies.     

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)     

Economic Reform and Corruption: Evidence from Panel Data

The notion that economic reform can reduce corruption remains prevalent in the policy agenda of international financial institutions, especially of the World Bank. Economic reforms have, therefore, been carried out throughout various parts of the world to improve the performance of the economies. Using data from 94 low‐ and middle‐income nations for the period 1996–2015, this study employs static and dynamic panel analysis to examine whether economic reform undertaken in accordance with the World Bank's reform programs negatively affects corruption. Our findings suggest that enhancing government effectiveness (i.e. independence of civil service from political pressure, provision of quality public services, effective policy formulation and the government's commitment to such policies) and improving public rights and civil liberties could be some of the most promising policies in terms of fighting corruption. The role of economic development and growth in real per capita income is also found to be significant in some of the specifications. However, the assertion that economic reform can reduce corruption is rejected in all the specifications. We rather find evidence that economic reforms negatively affect the ability of democracy to fight corruption, although on a slim margin. The central theme of the implications of our findings is that in combating corruption, social, institutional and legal means are far more important than economic means. The finding thus is compatible with the World Bank's effort in the later years to introduce governance and democracy as effective tool against corruption.     

What Role Does the Political Environment Play in Economic Development? —A Case Study of Fujian Province

Uncertainty induced by the political environment affects investment risk, and thus affects investment decisions, which have a close relationship with economic development. This paper investigates the economic cost of political instability using the case study of the tense relationship across-Strait in China. We use a synthetic control method to better model the counterfactual analysis of this case study. The intense situation of the relations across-Strait has great influence on the economic development of Fujian province. Fujian province is the closest province in proximity to Taiwan and also possesses the greatest preferential policies for Taiwanese direct investment. The empirical results of this study reveal that during 2001-2008 Fujian province’s average annual loss in GDP per capita was 682.54 yuan. In other words, GDP per capita in Fujian has declined about 12.1 percent annually during this period compared with GDP per capita as calculated by the synthetic control method.     

Anti-Malthus: Conflict and the evolution of societies

The Malthusian theory of evolution disregards a pervasive fact about human societies: they expand through conflict. When this is taken account of the long-run favors not a large population at the level of subsistence, nor yet institutions that maximize welfare or per capita output, but rather institutions that generate large amount of free resources and direct these towards state power. Free resources are the output available to society after deducting the payments necessary for subsistence and for the incentives needed to induce production, and the other claims to production such as transfer payments and resources absorbed by elites. We develop the evolutionary underpinnings of this model, and examine the implications for the evolution of societies in several applications. Since free resources are increasing both in per capita income and population, evolution will favor large rich societies. We will show how technological improvement can increase or decrease per capita output as well as increasing population.     

Lessons from the experience of OECD nations on macroeconomic growth and economic freedom, 2004–2008

This study empirically investigates the impact on per capita real economic growth of each of the ten measures of economic freedom computed annually by the Heritage Foundation. Within the context of the Random Effects Model, panel least squares estimations using a 5-year panel (2004 through 2008) dataset for the OECD nations as a group reveal that the percentage growth rate in the purchasing-power-parity adjusted per capita real GDP for OECD nations was, at the 5?% statistical significance level or better, an increasing function of at least seven of the ten economic freedom measures. The results underscore the critical role that economic freedom plays in a nation??s economic growth and prosperity and the importance of pursuing policies that are consistent with increasing economic freedom.     

Outside the Club: New Zealand's economic growth, 1870-1993

Recent tests of the Convergence Hypothesis, or the tendency for per capita income levels to narrow over time, have included a time-series testing approach (see Bernard & Durlauf, 1995, 1996; Oxley & Greasley, 1995, Greasley & Oxley, 1997, 1998a). Results have been mixed, with Bernard & Durlauf finding no evidence of convergence whereas Oxley & Greasley find evidence of two small convergence clubs. This paper adds to the debate by considering a newly created annual per capita income series for New Zealand, 1870-1993. The results show that the series is integrated of order 1, I(1), and neither a single break nor joint breaks overturn the null of a unit root. Combined with results from Greasley & Oxley (1998a, 1998b), this property of New Zealand data is incompatible with her belonging to a UK/Australia convergence club, or converging towards either of the North American economies. New Zealand per capita income growth is idiosyncratic, diverging below the growth rates of traditional trading partners. A conjunction of small size and insular economic policies distinguishes New Zealand's economic development.     

Economic openness and income growth in developing countries: a regional comparative analysis

This article examines and compares the openness–growth relationship between the high-performing Asian economies (HPAEs) and the rest of the developing world (Sub-Saharan Africa-SSA, South East Asia-SEA and Latin America and Caribbean-LAC). We applied the SYS-GMM estimator to a dynamic standard endogenous growth model which relates economic openness to real per capita income growth. A few key findings emerged from this study. First, economic openness led to increase in real per capita GDP growth in HPAEs and SSA, but not in LAC and SEA. Second, openness to trade accelerated income convergence among countries in SSA, SEA, and HPAEs, however, whereas foreign direct investment inflows accelerated income convergence only in SSA, it rather de-accelerated income convergence in HPAEs. Thirdly, the HPAEs recorded higher positive effect of openness on real per capita GDP growth than any of the other developing regions because they created sufficient stock of human capital that enhanced their absorptive capacity of imported advanced technology. They also created a more stable macroeconomic environment which consolidated the income growth gains from openness. The results of this study highlight the importance of the implementation of policies that are complementary to economic openness in promoting economic growth in the developing world.     

The effects of economic freedom,regulatory quality and taxation on the level of per capita real income: a preliminary analysis for OECD nations and non-G8 OECD nations

This study of the impact of economic freedom, regulatory quality and the relative burden of taxation on the level of per capita real income/GDP among OECD nations over the period 2003 to 2007 adopts a modified version of the overall economic freedom index computed by the Heritage Foundation (2013), one with the fiscal freedom and business freedom indices removed. This study then provides panel least squares fixed-effects estimates for five linear specifications/models. Each nation during this time frame can be regarded either as a nation per se or as a de facto ‘economic region’ within the OECD. The analysis first focuses upon all of the OECD nations and then, as a robustness test, subsequently focuses only on non-G8 OECD member nations. The estimations in this study all provide strong empirical support for the three central hypotheses proffered here, namely: (1) the higher the overall degree of economic freedom, the higher the per capita real income (GDP) level; (2) the higher the level of regulatory quality, the higher the level of per capita real income (GDP) and (3) the higher the overall tax burden, expressed as a per cent of GDP, the lower is the level of per capita real income (GDP).     

COMPARING PER CAPITA INCOME IN THE HELLENISTIC WORLD: THE CASE OF MESOPOTAMIA

Until quite recently, GDP growth between ca. 1 ce and the late Middle Ages was considered non‐existent or even negative. Recently, largely on account of increasing interest in historical national accounting, the late‐medieval figures have been revised upward, in line with an upward adjustment in the estimated shares of manufacturing and pasture. Leaving GDPs dating from the ancient world unaltered would consequently generate figures indicating increased economic growth during the first millennium ce . A considerable number of studies of the late‐medieval period (the object of increasing attention on the part of specialists in early economic history) have caused estimates for the ancient one to be revised upwards, essentially leaving estimates of the changes in economic development over time unaltered. These studies, however, have focused on the Roman Empire and Italia while there is a consensus in the literature that it was quite unrepresentative of all ancient societies with its relatively high share of GDP from the manufacturing sector of the economy. We therefore estimate a new per capita income for another contemporary agrarian society: ancient Mesopotamia. In addition, by examining manufacturing and pasture—the two main reasons for higher income which have been identified in the literature—we have found a tentative explanation for the fact that ancient Mesopotamia's per capita income deviated from that of Rome.     

产业政策、产业结构与经济增长的实证研究

产业政策和经济增长之间存在密切联系,通过我国产业政策与经济增长的结构分析,证实了我国产业政策发展存在三个阶段,证明了产业政策通过改变产业结构从而影响经济增长。通过产业结构偏离度、排放系数和产业人均收入指标的研究,表明我国结构调整需要寻找合理的平衡,得出了产业政策和经济增长是相辅相成、不可分割的一体两面的结论。     

New empirical evidence of the linkages between governance and economic output in the European Union

This paper uses data for the 27 Member States of the European Union (EU) from 2000 to 2010 to support the thesis that a positive and significant correlation exists between a nation’s quality of governance and its economic output. To achieve this goal, the elements of governance that have been reported by the Worldwide Governance Indicators project are considered. Four individual indicators for the quality of policies and institutions and a global indicator of governance quality are constructed. We estimate that, for our database, a standard deviation shock in these indicators causes changes between 0.03-fold and 0.05-fold in income per capita.     

Industrial policy revisited: a new structural economics perspective

Whether or not governments should play a facilitating role in economic development has long been a topic for economic discourse and research. As an important instrument to promote economic development, throughout history even to the present, industrial policy is often and actively used by governments. Much controversy surrounds whether and how governments should implement industrial policy.In this article, failures and successes of implementing such policies are analyzed through a new structural economics perspective. Specifically, the article argues that (1) sector-targeted industrial policy is essential to achieve dynamic structural change and rapid, sustained growth in an economy; (2) most industrial policies fail because they target industries that are not compatible with the country’s comparative advantages; (3) successful industrial policy should target industries that reflerct the country’s latent comparative advantages; (4) historical experiences show that in the catching-up stage, the industrial policies of successful countries, in general, have targeted the industries in countries with a similar endowment structure and somewhat higher per capita income; and (5) the Growth Identification and Facilitation Framework (GIFF), based on new structural economics, is a new, effective way to target latent comparative-advantage industries and support their growth.     

农民收入结构比较研究——基于中部六省数据的分析

随着中部崛起战略的实施,中部六省成为我国区域经济中的重要板块,"弯道超车"战略取得了明显的成效,经济总量逐步提高。但是农民人均纯收入的水平相对较低,影响了中部战略崛起的整体实施效果。分析了中部六省农民人均纯收入的结构,认为政府应当出台有针对性的政策,加快提升农民收入,促进中部六省整体和谐发展。     

Political capitalism: The interaction between income inequality,economic freedom and democracy

We study the relationship between income inequality and economic freedom for a panel of 100 countries for the 1971–2010 period. Using a panel Granger non-causality approach, we reject the null hypothesis of Granger non-causality running from income inequality to economic freedom, but not vice versa. From a series of dynamic panel estimations we show that the effect of income inequality on economic freedom is negative and robust to the inclusion of additional controls. In particular, inequality is negatively associated with those components of economic freedom related to international trade, domestic market regulation as well as the rule of law and property rights protection. We argue that the negative effect of inequality on economic freedom is due to the economic elite converting its economic power into de facto political power to defend its economic interests; these interests run counter to economic freedom, discouraging innovation and competition as well as protecting the elite's rents. Finally, we show that economic freedom decreases with income inequality even in democratic countries, suggesting that democratic institutions do not prevent economic freedom from eroding. We argue that the latter finding corresponds to a system of political capitalism or captured democracy, where a powerful economic elite can nevertheless exercise de facto political power by cooperating with politicians and other decision-makers for their mutual benefit.     

Institutional Quality Mediates the Effect of Human Capital on Economic Performance

This paper considers the relationship between institutional quality, educational outcomes, and economic performance. More specifically, we seek to establish the linkages by which government effectiveness affects per capita income via its mediating impact on human capital formation. Our empirical approach adopts a two‐stage strategy that estimates national‐level educational production functions that include government effectiveness as a covariate, and uses these estimates as instruments for human capital in cross‐country regressions of per capita income. Our results identify a significant and positive effect of human capital on per capita income levels, and partially resolves the inconsistency between macro‐ and micro‐level studies of the effect of human capital on income. The results remain robust to alternative specifications, extension to a panel setting, subsamples of the data and fully endogenous institutions.     

New Zealand's Economic Reforms: An assessment

New Zealand's economic policy between 1984 and 1996 is often hailed as an example of comprehensive supply-side reform that successfully improved the performance of a weak economy. In contrast, this paper presents statistical evidence to show that: (1) New Zealand sacrificed a large volume of real per capita gross domestic product after 1987; (2) its average unemployment rate increased substantially after 1988; (3) labour productivity growth declined after 1992; and (4) the per capita real income of low-income households in 1996 was more than 3% lower in absolute terms than it had been in 1984. The paper concludes that the economic reform programme did not achieve the objectives expected at its launch.     

Pro-market institutions and labor market outcomes: A panel-data analysis of U.S. metropolitan areas

We expand previous U.S. state-level research on the relationship between pro-market institutions and labor market outcomes by examining this relationship at the U.S. metropolitan-area level. Using panel data for 1992–2012 in a fixed-effects model, we investigate the effect of pro-market institutions on the unemployment rate, labor force participation rate, employment-population ratio, and employment growth across 366 U.S. metropolitan areas. The results indicate that pro-market institutions are associated with a lower unemployment rate, higher employment-population ratio, and faster employment growth. These results suggest that local-area policies are important for achieving favorable labor market conditions at the local level.