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Research Institute of Industrial Economics (IFN) Working Paper Series

No 1056:
Economic Freedom and Economic Crisis

Christian Bjørnskov ()

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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