DRI Working Paper No. 33
By Claudia Williamson, NYU and Rachel Mathers, West Virginia University
Economic Freedom, Culture and Growth
How does economic freedom and culture impact economic growth? This paper argues that culture and economic institutions, specifically economic freedom, both play a role in economic development independently, but the strength of their impact can only be better understood when both are included in the growth regression. We find that, when both are included in the growth regression, the impact of culture is greatly diminished, while economic freedom continues to have a significant impact on economic growth. Our results suggest that economic freedom is more important than culture for growth outcomes, though the mechanisms through which culture affects growth warrant further investigation. We posit that culture may be more important for initial growth, diminishing in significance once the institutions of economic freedom have been established.