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Freedom and Economic Growth in the Poorest Countries

Mises Daily: Friday, September 23, 2011 by

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I just finished the first draft of a paper exploring some of the factors influencing economic growth in poor countries. I put together a sample of 37 countries that were at the bottom of the income scale in 1970 and traced their economic performance over the ensuing 40 years, trying to discern some of the reasons for the differences in growth among countries. One of the measures I used was the Fraser Institute's Economic Freedom (EF) Index. The following simple table speaks volumes about why some countries prosper and others don't. (The chart divisions allow class mobility.)

Figure 1
Data sources: EF scores from FreeTheWorld.com, real GDP, chain series, from Penn World Table.

The results are all the more dramatic when we realize just who these countries are.

Mises Academy: Robert Lawson teaches Economic Freedom Around the World

All started in abject poverty; all had real per capita GDP of less than $2,000 per year in 1970. And none of these countries are paragons of freedom; of the 37, only two — the Philippines and Kenya — had EF scores above 7 (out of 10) in 2005.

Still, the freest 25 percent showed steady growth and the most unfree 25 percent were poorer in absolute terms in 2005 (average of 2005–2009) than they were in 1970.

Obviously there is more to the story — and the paper — than just this one graph. But if you still harbor any doubt as to the power of even a little bit of freedom to lift people up in even the poorest countries, this should help set you straight.