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Economic Freedom and Economic Growth - Hypothesis


Let's have a lazy experiment.

Hypothesis 1: The greater the share of the economy that allocates resources based on trade versus planning the faster the economy will grow.

Hypothesis 2: The less the government regulates the society it claims to rule the faster the economy will grow.

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Definitions: Trade means resource allocation according to the movement of supply and demand. Planning means resource allocation according to a government plan. Economic growth means increasing access over time to goods and services. Regulation means government rules restricting economic activity.

~~~ ~~~ ~~~

First metric: Planning versus Trade (PT) to summarise economic activities for production and distribution of goods and services. P & T are inversely proportional, with seven different results showing the share of total economic activity consisting of P versus that consisting of T.

PPP
PP / T
P / T
P | T
P \ T
P \ TT
TTT

Second metric: Freedom (F) to summarise the freedom of people to set up businesses, produce and trade on their own initiative.

F1 : Tightest regulation and repression
F10 : No government regulation or repression at all

~~~ ~~~ ~~~

CANDIDATES: Now we hit on several made up countries so that we can test the metrics in a purely theoretical space first.

Fweeh Mahkahtiya : P \ TT : F 9

The Technate : PPP : 1

The Anarchate : PP / T : 3

The Free State : TTT : 10

My estimate would be that over any given 100-year period the relative rate of growth of each of these four countries would be, from fastest to slowest; The Free State; Fweeh Mahkahtiya; The Anarchate; The Technate.

~~~ ~~~ ~~~

If those four countries were real we could use some annual GDP growth data to test their long-term economic performance. In real life it's hard to test this hypothesis as economic policies change every few years, sometimes in ways that can dramatically change a country's score.

Therefore a lot of normalising over time will probs be required. I am not looking forward to this, but since macro- is so beloved by people who don't understand economics I understand why so many economists go in for this stuff.

In the meantime there's always the Economic Freedom of the World Report. They also have a page where one can look over their data.

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