Financial freedom, as measured by say the Fraser Institute’s EF Index correlates extremely with GDP per capita. Alvarez, Geloso and Scheck present that after you take into consideration the truth that dictators lie, the correlation is even greater!
SSRN: The literature connecting financial freedom indexes to revenue ranges and development typically factors within the course of a optimistic affiliation. On this paper, we argue that this discovering is a extremely conservative as the information is closely biased in opposition to discovering any results. The bias emerges because of the tendency of dictatorial regimes to overstate their GDP degree. Dictatorships additionally are likely to have decrease scores of financial freedom. This downwardly biases any estimations of the relation between revenue and financial freedom. On this paper, we use current corrections to GDP numbers — primarily based on nighttime gentle depth — to estimate the bias. We discover that the true results of financial freedom at its element on revenue ranges are between 1.1 and 1.33 instances higher than generally estimated. For financial development, the bias is much smaller and solely seems to be related for some particular person elements resembling measurement of presidency and property rights.
