Economic freedom and social capital: pooled mean group evidence

ABSTRACT

This article uses annual US-state-level data from 1986 to 2004 and pooled-mean group estimation based on Pesaran et al. (1999) to examine whether economic freedom influences social capital. We find economic freedom has a negative effect on our social capital measure. This result is driven by the labour market component of freedom which is indicative of the relationship between labour market freedom and Olson-type group social capital.

KEYWORDS:

• Social capital
• economic freedom
• pooled-mean group estimators

JEL-CLASSIFICATIONS:

• H11
• O17
• P16

Acknowledgement

I would like to thank Ryan Compton and Art Carden for many helpful conversations and comments. All remaining errors are my own.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ The freedom measures used in this study are the federal-state-local measure.

² Note that in terms of other variables in the analysis, increases in Gini, HHI and GSP fairly consistently are associated with more social capital, while increases in metropercent and population are negatively associated with social capital.

³ Keep in mind that the subcomponent based on labour union density is still a measure of economic freedom. Higher union density is given a lower score while lower density get a higher freedom score.

⁴ For brevity, we have omitted these regression results. These are available upon request.