Economic Freedom and Prosperity

A strong positive correlation exists between economic freedom (a.k.a capitalism) and prosperity. A range of supporting evidence is provided here.

Article: What is Economic Freedom?
Economic freedom is the freedom to produce and trade goods and services according to one’s own judgment, unrestrained by the physical coercion or compulsion of others, including the government. One must be free to acquire, use, and dispose of private property. Individuals must be free to enter into voluntary contractual relationships. The root identification here is that no man has a moral right to stake a claim on the productive activity of another against his will.

2008 - Eric Daniels - Capitalism Magazine
Ranking: Index of Economic Freedom
2018 - The Heritage Foundation
PDF: 2018 Index of Economic Freedom
2018 - The Heritage Foundation
PDF: Economic Freedom of the World: 2018 Annual Report
2018 - The Fraser Institute
PDF: The Importance of Economic Freedom
In order to determine whether there is a connection between economic freedom and economic growth, a metastudy of all empirical research involving economic freedom was undertaken, via Google scholar citation service, covering 2428 studies. There were 92 studies detected that dealt with this topic, out of which 86 reported positive connection between these phenomena, and only 1 reported a negative, while 5 others were less conclusive. This shows an unusually high level of agreement among economists that economic freedom indeed has a significant positive impact on the level of economic growth.

2017 - Libek
PDF: Economic Freedom of the World: Accounting of the Literature
Of 402 articles citing the EFW index, 198 used the index as an independent variable in an empirical study. Over two‐thirds of these studies found economic freedom to correspond to a "good" outcome such as faster growth, better living standards, more happiness, etc. Less than 4% of the sample found economic freedom to be associated with a "bad" outcome such as increased income inequality. The balance of evidence is overwhelming that economic freedom corresponds with a wide variety of positive outcomes with almost no negative tradeoffs.

2013 - J. C. Hall and R. A. Lawson - Contemporary Economic Policy, Volume 32, Issue 1
PDF: Economic Freedom, Political Freedom, and Economic Well-Being: A Causality Analysis
The results indicate that both industrial and non-industrial countries exhibit similar Granger-causal relationships among the variables studied. Specifically, the results show that economic freedom Granger-causes the level of economic well-being for both industrial and nonindustrial countries.

1998 - W. K. Farr, R. A. Lord, and J. L. Wolfenbarger - Cato Journal, Vol. 18, No. 2
PDF: Economic Freedom of the World (2017 Report)
The index published in Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property. Forty-two data points are used to construct a summary index and to measure the degree of economic freedom in five broad areas.
PDF: Economic Freedom and the Environment for Economic Growth
The empirical results show that economic freedom is a significant determinant of economic growth, even when human and physical capital, and demographics are taken into account.
PDF: Economic Freedom, Prosperity, and Equality: A Survey
The link between liberty and prosperity appears so strong, and the effects of prosperity on the quality (and length) of life appear so favorable, that it might be reasonable to ask: Why would anyone consider a development strategy that does anything other than enhance economic freedom?
PDF: Ten Consequences of Economic Freedom
Economic freedom raises incomes and improves living standards. It requires strong institutions and encourages their further development. Over time, poor developing countries that have adopted policies consistent with economic freedom have pulled ahead of their former peers.
PDF: Do Changes in Economic Freedom Affect Well-Being?
In this paper we test the relationship between changes in economic freedom and well-being. We find that improvements in economic freedom lead to increases in well-being for the average state.
PDF: Does Economic Freedom Matter for Health?
The results imply that life expectancy increase and infant mortality decrease when the level of economic freedom increases. Findings of this study support the previous studies that suggest a positive impact of political freedom and economic freedom on health
Article: Happy Countries Enjoy Economic Freedom
The EFW report explicitly compares its measure of economic freedom with the World Happiness Index, and finds a clear correlation. The least free quartile of countries had an average happiness score of 4.61 on that index, compared to an average of 6.70 for the freest quartile.
PDF: Economic Freedom and Happiness
Using the best available data for a sample of well over 100 countries, this article finds a positive relationship between national levels of happiness and economic freedom. [...] Around the world, freer people generally are wealthier, live longer, and are happier.
PDF: Economic Freedom, Individual Perceptions of Life Control, and Life Satisfaction
We find that living in a country with high overall economic freedom is a relevant determinant of feeling in control of one's own life. As one might expect, a substantial share of the impact of economic freedom on life satisfaction is actually channeled through life control. Therefore, economic freedom also influences individual happiness by giving people the feeling of being more in control of their own lives and having the freedom to choose between different options in the market.
Article: Happiness, Prosperity and Economic Freedom
Economic freedom might boost prosperity, but what about fairness and happiness? Freedom also correlates with these values. A link between economic freedom and happiness makes sense. Freedom allows people to shape the course of their lives. Although freedom does not guarantee good choices, being forced to do something you do not like seriously reduces happiness.
Article: How Economic Freedom Promotes Better Health Care, Education, and Environmental Quality
This Special Report has attempted to expose the fallacy that economic freedom principles undermine the provision of social goods. In fact, the principles of economic freedom have shown themselves to be more efficient and effective than statist approaches for the provision of those goods.
PDF: Free to Be Happy: Economic Freedom and Happiness in US States
This confirms the relationship as positive and is suggestive of a causal positive impact of economic freedom on average state happiness.
PDF: Economic Freedom and Economic Growth: A Short-Run Causal Investigation
The tests suggest the average level of freedom in a nation, as well as many of the specific underlying components of freedom, precedes growth. However, growth may precede one of the component indexes (Government Intervention), and no relationship is found to exist between growth and two of the indexes (Trade Policy and Taxation).
PDF: Economic Freedom, Per Capita Income and Economic Growth
Based on cross-section data, this paper explores the relationship between economic freedom and the economic performance of low, middle and high income countries. The regression results show that there is a direct relationship between the economic freedom index and per capita income in low income countries and all countries as a whole. The evidence also indicates that there is a direct relationship between the economic freedom index and the growth rate of per capita income in high income countries and all countries as a whole.
PDF: Economic Freedom and Quality of Life: Evidence from the OECD's Your Better Life Index
I find that economic freedom is strongly and positively correlated with most of these areas of well-being even after I control for the positive impact of income. More importantly, however, the strongest effect of economic freedom is associated with some of the non material dimensions of quality of life such as community, safety, and life satisfaction, which are still underresearched areas in the economic freedom literature.
PDF: The Impact of Economic Freedom on Per Capita Real GDP: A Study of OECD Nations
This study of the impact of economic freedom on per capita real GDP among OECD nations over the 2002-2006 period. [...] These results would appear to suggest a strong relationship between per capita real income (GDP) and various forms of economic freedom.
PDF: The Benefits of Economic Freedom: A Survey
Adam Smith argued that market processes satisfy people's demands spontaneously. Even though he realized that free markets are not perfect, he understood that, generally speaking, they, more than any alternatives, are able to advance wealth and welfare. Theoretical arguments and empirical results make this relationship clear.
PDF: Economic Freedom and Economic Growth: Does Specification Make a Difference?
In this paper we apply meta-analytic techniques to the literature on the impact of economic freedom on economic growth and find an overall positive direct association between economic freedom and economic growth. A positive indirect effect of economic freedom on economic growth through the stimulation of physical capital is also identified.
PDF: Economic Freedom and the Wealth and Well-Being of Nations
With respect to economic growth, which over time leads to greater average incomes, the evidence is solid that economic freedom is highly important (de Haan et al. 2006), and that in turn, economic freedom is more potent than democracy (Wu and Davis 1999) in fostering growth. [...] Broader measures of economic freedom (private property rights, sound money, trade openness and government size) correlate very strongly with increased income equality. Scully (2002) also found that economic freedom promotes both economic growth and income equality.
PDF: The Relationship Between Economic Freedom and Soci-Economic Development
The empirical results support the hypothesis that increased economic freedom leads to an improvement in the quality of life. The coefficient of the freedom index is significant in all 6 equations that use the Human Development Index to capture the level of socio-economic development
PDF: Economic Freedom, Democracy and Economic Growth: A Causal Investigation in Transition Countries
The analysis was conducted for 25 post-socialist countries for 1990–2008 using a set of 20 indicators of economic and political freedom and Granger causality tests. The results show that although economic freedom has a positive impact on economic growth in transition countries, political freedom is neutral for economic growth; changes in the level of political freedom are however influenced by economic growth.
Article: Economic Freedom and the Building Blocks of Prosperity and Stability
The evidence seems to suggest that economic freedom leads to stability, peace, and security. At the very least, economic freedom is a key ingredient to the stability, peace, and security that characterizes the top quartile of the Economic Freedom of the World rankings.
PDF: Economic Freedom and Macroeconomic Determinants of Economic Growth: Cross‐Country Evidence
The results show that economic freedom, in addition to known macroeconomic variables, is significantly related to economic growth.
PDF: The Sinuous Dragon: Economic Freedom and Economic Growth in China
For nearly 40 years China has enjoyed substantial economic development through a freer economic environment and has become the second largest economy in the world. [...] China is evidence that a little bit of economic freedom goes a long way.
Article: Economic Freedom
Much scholarly research has been and continues to be done to see if [economic freedom] correlates with various measures of the good society: higher incomes, economic growth, income equality, gender equality, life expectancy, and so on. While there is scholarly debate about the exact nature of these relationships, the results are uniform: measures of economic freedom relate positively with these factors.
Article: The Relation Between Political Freedom and Economic Prosperity
A positive relationship exists between economic freedom and living standards.
Article: Economic Freedom and Economic Harmony
There is a very strong relationship between economic and business freedom and prosperity. [...] The alternative to a free economy is one that is centrally controlled to some degree or other and where the state is responsible for the allocation of resources and determines on what terms people can participate in economic life. Then, the state becomes the main power centre and it uses its resources to coerce rather than to promote freedom.
Article: If We Want More Economic Growth We Need More Economic Freedom
These results are consistent with what we know about economic freedom and economic growth at the national level, namely that economic freedom has a positive, direct effect on economic growth.
PDF: Economic Freedom and Economic Growth: A Time Series Evidence from the Italian Economy
The empirical results indicate that economic freedom has a significantly positive impact on growth of the Italian economy, even after controlling for other often-cited correlates of growth. This finding is robust to the use of various aggregated freedom indexes and regressions as both bivariate and multivariate regressions produce similar outcomes. The evidence also suggests that economic freedom powered by improved institutions works through both a direct effect on total factor productivity of human capital and an indirect effect on investment.
PDF: Does Economic Freedom Lead or Lag Economic Growth? Evidence from Bangladesh
The results tend to indicate that Economic Freedom does clearly lead and enhance economic growth in the context of Bangladesh during the period under review.
PDF: Give Me Liberty and Give Me Control: Economic Freedom, Control Perceptions and the Paradox of Choice
Using data from the World Values Surveys (WVS) and the Economic Freedom of the World (EFW) index, we find that people living in more economically free countries are more likely to perceive greater control over their lives. This effect is not diminishing at higher levels of economic freedom.
PDF: Impact of Economic Freedom on the Growth Rate: A Panel Data Analysis
We observe that there is very consistent and clear evidence that economic freedom has a significant impact on the annual GDP growth rate across different models, sample of countries and periods under consideration.
PDF: Economic Freedom Improves Human Well-Being
When it comes to economic freedom, the numbers tell a very consistent story, although it is a story that remains underappreciated to this day. [...] [T]he more economic freedom a government leaves in the hands of its people, the better off those people are, not only in terms of basic material well-being, but also in terms of social and individual indicators of human well-being&mbdash;things like health, education and happiness.
PDF: Who Benefits from Economic Freedom? Unraveling the Effect of Economic Freedom on Subjective Well-Being
Results from a panel of 86 countries over the 1990–2005 period suggest that overall economic freedom has a significant positive effect on subjective well-being. Its dimensions legal security and property rights, sound money, and regulation are in particular strong predictors of higher well-being. The overall positive effect is not affected by socio-demographics; the effects of individual dimensions vary,
PDF: Free to Choose? Economic Freedom, Relative Income, and Life Control Perceptions
We find that living in a country with high overall economic freedom is a major determinant of feeling in control of one’s own life. The effect is similar for individuals in high- and low-income countries, while the impact of democracy is negligible in both cases. Interacting relative income with economic freedom, we find that, contrary to conventional wisdom, it is by far the lower income groups that derive the biggest gain of perceived life control from living in a country with comparatively high economic freedom. In low-income countries, the effects of economic freedom on life control perceptions do not appear to be conditional on personal income levels.
PDF: Institutional Origins of Subjective Well-Being: Estimating the Effects of Economic Freedom on National Happiness
The evidence suggests countries with better economic institutions and higher level of economic freedom, captured by the security of property rights, open markets and more limited government, are significantly more likely to experience greater subjective well-being after controlling for structural confounders of national subjective well-being such as income, unemployment, inequality, social capital and life satisfaction.
PDF: Evaluating the effect of Economic Freedom and other Factors on the Economic Prosperity of Nations
Our finding's reinforce Adam Smith's hypothesis that economic freedom has a strong positive effect over the economic prosperity of a country.
PDF: Private Property Rights, Economic Freedom, and Well Being
Those countries with an institutional environment of secure property rights and high degrees of economic freedom have achieved higher levels of various measures of human well-being.
PDF: Economic Freedom and Emotional Well-Being
People who live in countries with greater economic freedom are more likely to report feeling excited, accomplished, and on the top of the world. At the same time, they are less likely to report feeling pride, restlessness, loneliness, boredom, and being upset. These results are consistent with previous studies that find a positive association between economic freedom and life satisfaction.
PDF: The Scope of Government and the Wealth of Nations
The idea that a market economy provides the foundation for prosperity has gained widespread acceptance in recent years. [...] The findings of this paper show a strong and persistent negative relationship between government expenditures and growth of GDP, both for the developed economies of the OECD and for a larger set of 60 nations around the world.
PDF: Economic Freedom and Human Capital Investment
Using data from 1972 to 2011 on 109 countries, this paper empirically studies the impact of economic freedom on human capital investment. Controlling for a large number of other determinants of education, it finds that, over the sample period, economic freedom had a substantial positive effect.
PDF: Poverty, Property Rights and Human Well Being: A Cross National Study
I show unequivocally that well-specified property rights enhance the well-being of the world’s poorest inhabitants. Thus, my results are consistent with Knight's observations that (1) progress has an intimate connection with the institution of private property, and (2) the connection is generally evident regardless of the measure of property rights. In particular, the institution of private property is closely linked with the well-being of the poorest members of the world community.
PDF: Well-Being and Economic Freedom: Evidence from the States
Our regression analysis indicates that, across the 50 states, improvements in economic freedom lead to higher levels of well-being after controlling for other economic factors.
PDF: Does Economic Freedom Foster Tolerance?
Stable monetary policy and outcomes is the area of economic freedom most consistently associated with greater tolerance, but the quality of the legal system seems to matter as well. We furthermore find indications of a causal relationship and of social trust playing a role as a mechanism in the relationship between economic freedom and tolerance and as an important catalyst: the more trust in society, the more positive the effect of economic freedom on tolerance.
Article: Free, Tolerant, and Happy
Economic freedom, according to our analysis, is not just a lofty goal or something that can be imposed on societies. Rather, as we've seen, economic freedom is tied to material economic and social conditions. Economic freedom, not surprisingly, reflects levels of affluence and economic development: richer countries are, on average, freer. But economic freedom is also tied to postindustrial economic structures. It is considerably higher and more widespread in nations with a larger creative class, a smaller working class, and more highly educated people. Freer countries are also more tolerant, with more open social attitudes toward minorities and gays. This is in line with Ronald Inglehart's decades-long observation of the shift from materialist to post-materialist values. And economic freedom goes hand in hand with higher levels of happiness and life satisfaction.
Article: Economic Freedom, Democracy and the Quality of Life
The evidence suggests that societies which rely more heavily on policies that create and maintain individual economic freedoms to promote well-being in society will be more successful than societies that rely more heavily upon greater political rights to achieve social progress.
Article: Economic Freedom Leads to Cleaner Air
Data from the Fraser Institute and the World Health Organization show that economic freedom, prosperity, and air quality are tightly correlated around the world.
Article: Is Economic Freedom the Secret to Happiness?
Economic freedom affects happiness because it directly increases the number of options available. This happens as institutions of economic freedom lead to greater wealth and prosperity and as individuals are granted autonomy in their decision-making. Without economic freedom, individuals are forced to accept coercive decisions, which reduces their overall happiness. The relationship between economic freedom and happiness has been shown extensively at the international-level.
Article: Everything You Love You Owe to Capitalism
All of history has been defined by the struggle for food. And yet that struggle has been abolished, not just for the rich but for everyone living in developed economies. The ancients, peering into this scene, might have assumed it to be Elysium. Medieval man conjured up such scenes only in visions of Utopia. Even in the late 19th century, the most gilded palace of the richest industrialist required a vast staff and immense trouble to come anywhere near approximating it. We owe this scene to capitalism.
Article: Capitalism Saves
What is it that started changing in the United States and northern Europe in the past few centuries? Technology, yes. Nutrition and antibiotics and a better understanding of diet and exercise, absolutely. But what caused those things to appear after 7,000 generations? Capitalism.
Article: Does Economic Freedom Promote Social Progress?
Yes, economic freedom does support social progress, [but] there's more to economic freedom than small government.
Book: Economic Freedom: Lessons of Hong Kong by Kui-Wai Li
[E]conomic freedom promotes peace, stability and prosperity. [...] Surely, the experiences and practices of economic freedom exercised in Hong Kong can serve as lessons, and provide parallel references and influences to other emerging and developing economies in the home to achieve a higher degree of economic freedom and development.
Book: Economic Behavior, Economic Freedom, and Entrepreneurship by Richard J. Cebula, C. Hall, Franklin G. Mixon Jr., James E. Payne (eds.)
Book: Economic Freedom and Prosperity - The Origins and Maintenance of Liberalization by Benjamin Powell
Economic theory and a growing body of empirical research support the idea that economic freedom is an important ingredient to long-run economic prosperity.
Book: Economic Freedom and Interventionism by Ludwig von Mises
Earlier ages had labored under the misapprehension that no man or group of men can profit but by the loss of others. In entirely demolishing this fallacy, eighteenth-century social philosophy and economics paved the way for the unprecedented achievements of modern Western civilization.
Video: Economic Freedom and Quality of Life
Video: The Role of Economic Freedom
Video: Ranking Economic Freedom
Video: The Benefits of Economic Freedom
Video: Economic Freedom by the Numbers

Counter-Evidence

PDF: Economic Development, Political-Economic System, and the Physical Quality of Life
This study compared capitalist and socialist countries in measures of the physical quality of life (PQL), taking into account the level of economic development. In 28 of 30 comparisons between countries at similar levels of economic development, socialist coun- tries showed more favorable PQL outcomes.

This study is severely flawed in multiple ways. Firstly, it treats political-economic system (capitalism or socialism) as a binary variable, when in reality these systems exist in different forms and to varying degrees. This fact is alluded to and then dismissed with almost no justification. Secondly, it deliberately omits high-income capitalist countries because no socialist countries with an equivalent level of GNP exist. This ignores the strong positive correlation between economic freedom and economic development/productivity that is demonstrated in many of the studies above. Thirdly, the economies of most of the countries classified as socialist in the paper collapsed completely within the following ten years; the USSR being the most obvious example.

1982 - S. Ceresto and R. Waitzkin - American Journal of Public Health