Poverty and Economic Freedom: Evidence from Cross-Country Data

Rana Hasan, M.G. Quibria () and Yangseon Kim
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Yangseon Kim: Visiting Scholar, East-West Center

No 60, Economics Study Area Working Papers from East-West Center, Economics Study Area

Abstract: This paper explores the empirical relationship between poverty and economic freedom. In doing so, it estimates the levels of absolute poverty for a panel of over forty developing countries and then utilizes fixed effects and GMM-IV estimators to derive the empirical relationships. The principal empirical results that emerge from this exercise indicate that important indicators of economic freedom such as openness to trade and small size of the government are robustly associated with poverty reduction. Labor market flexibility, which reflects an important dimension of economic freedom, does not have a significant effect on poverty on average. However, there is some evidence that trade's beneficial impact on poverty has been smaller in economies with more regulated labor markets. Finally, civil liberties that encompass various types of important economic freedom such as poverty rights, rule of law, etc., also contribute significantly to poverty reduction. This result contrasts with that for political liberties, which have seemingly no impact on poverty reduction. All these suggest that economic freedom is as much important for economic growth as for poverty reduction.

Pages: 40 pages
Date: 2003-09
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (15)

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