It is a relatively indisputable result, confirmed by a number of economic studies, that economic freedom has a positive effect on income (GDP per capita). Economic research to appear in European Journal of Political Economy“Revisiting the Relationship Between Economic Freedom and Development to Account for Statistical Illusion in Autocratic Regimes,” argues that the relationship undermines autocratic regimes because GDP statistics are overestimated. Such regimes restrict economic freedom and are interested in hiding the results from their subjects. Moreover, the obstacles facing a dictatorship are greatly reduced by the absence of a free media and periodic elections that can remove him.
The authors of the paper are Vincent Geloso, an assistant professor of economics at George Mason University, and two Ph.D. Middle Tennessee State University candidates Sean Alvarez and Macy Scheck. Vincent Geloso is a young professor and rising star who has published economic studies of great interest in many areas.
The authors measure economic freedom mainly with the Fraser Institute’s Economic Freedom of the World index. In terms of measuring the gap between officially reported and real GDP figures, they correct the former by using the night light observed by satellites (following the study of economist Luis Martinez). The idea is straightforward: there should be a correlation between a country’s average wealth (proxied by GDP per capita) and its brightness at night; a very poor country, you expect it to be dark at night. Photos of extreme cases in North Korea and South Korea are one example. Geloso et al. use data for more than 110 countries over two decades. By comparing the coefficients representing the effect of economic freedom on GDP and statistical growth using both reported GDP and adjusted GDP, they obtain a measure of how authoritarianism increases reported prosperity. Quoting from the conclusion of the accepted version of their article:
For income levels between 1992 and 2013, we find that the real effect of economic freedom is between 1.1 and 1.62 times larger than estimates based on adjusted GDP numbers. … we find signs that the correlation between income growth and changes in economic freedom is being undermined.
Our results are consistent with findings that authoritarianism is generally unable to sustain high levels of economic development and that it is not significantly better at ensuring rapid economic growth.
These very logical results, I suggest, raise two related questions. First, falsifying GDP figures while keeping them somewhat honest is not as easy as it seems. When statistics are provided by international organizations such as the World Bank, the fake numbers need to be consistent and appear to respect the desired and internationally recognized methodology of national accounting. Second, why does the World Bank not scrutinize national accounts data? I suspect the answer is that, like the International Monetary Fund and other intergovernmental organizations, the World Bank is dependent on its member governments and the politicians of the latter. In other words, I estimate that NGOs are too politically oriented and their economic positions are not independent enough.
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