Economic Growth and Freedom: A Causality Study

nomic freedom, while the Freedom House publishes an index of political freedom around the world (Gwartney and Lawson 2002; O’Driscoll, Holmes, and Kirkpatrick 2002; Freedom House 2001). The explanations and graphs in those reports illustrate the relation-ships between each of the indexes and relevant socioeconomic vari-ables such as GDP growth, life expectancy, and measures of human development. What the annual reports suggest is that there is a posi-tive relationship between economic freedom and the standard of living, as well as between economic growth and political freedom. Although such assertions would appear to be intuitively correct, the reports do not undertake any rigorous empirical tests to provide sci-entific support to such relationships. The empirical analyses existing in the literature afford more or less clear, but inconclusive, results. They highlight the positive impact of economic freedom on growth,1 or the ambiguous relationship between growth and political freedom. Fewer studies have been published on the association between the two types of freedom, but much attention is paid to the hypothesis of both being mutually enhancing. Such conclusions are open to criticism. Generally speaking, they depend on the choice of methodology and sample size. Moreover, a series of control variables must be included in the model for the analysis to be robust. In other words, there is a need for data on