Which economic freedoms influence per capita real income?

Abstract

Several recent empirical studies find a strong, positive impact of economic freedom on economic growth. This finding is predicated upon the argument that increased economic freedom elevates the pace of economic activity through incentives and other means and hence generates higher economic growth. This study focuses on a similar, but not identical, potential impact of higher economic freedom levels. In particular, this study investigates the hypothesis that higher levels of economic freedom promote higher levels of economic activity and hence higher levels of per capita real income. The context of this empirical study is the 30 nations of the OECD over the study period 2003 to 2006. Panel Least Squares (PLS) estimations reveal that the level of per capita real income is an increasing function of business freedom, freedom from corruption, investment freedom, monetary freedom, government size freedom, trade freedom and property rights freedom, whereas fiscal freedom, labour freedom and financial freedom do not appear to influence per capita real income.

Keywords:

• per capita real Gross Domestic Product
• economic freedom
• panel data
• Fixed-Effects model

JEL Classification:

• P10
• P12
• P14
• E20