Working Paper Series
Economic Freedom and Economic Crisis
Abstract: In this paper, I explore the politically contested
association between the degree of capitalism, captured by measures of
economic freedom, and the risk and characteristics of economic crisis.
After offering some brief theoretical considerations, I estimate the
effects of economic freedom on crisis risk in the post-Cold War period
1993-2010. I further estimate the effects on the duration, peak-to-trough
GDP ratios and recovery times of 212 crises across 175 countries within
this period. Estimates suggest that economic freedom is robustly associated
with smaller peak-to-trough ratios and shorter recovery time. These effects
are driven by regulatory components of the economic freedom index.
Keywords: Crisis; Economic freedom; Institutions; (follow links to similar papers)
JEL-Codes: O11; O43; P16; (follow links to similar papers)
31 pages, January 23, 2015
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