Economic freedom, as measured by the Fraser Institute’s EF Index, is highly correlated with GDP per capita. Alvarez, Geloso and Scheck show that when you take into account the fact that fanatics lie, the correlation is even higher!
SSRN: The literature that combines indicators of economic freedom with levels of income and growth often points in the direction of a positive correlation. In this paper, we argue that these findings are highly conservative since the data are too biased to find any results. The bias arises because of the tendency of authoritarian regimes to overstate their GDP. Dictatorship tends to have negative effects on economic freedom. This decline biases any estimates of the relationship between income and economic freedom. In this paper, we use the latest corrections to the GDP numbers – based on the light intensity at night – to estimate the bias. We find that the real effects of economic freedom on its part on income levels are between 1.1 and 1.33 times larger than the estimated normal. In economic growth, the bias is much smaller and seems to apply only to certain areas such as the size of government and property rights.
Source link