While those on the Left call for government to “do something” to get the national economy moving, those of us who follow the data know which policies lead to economic growth and which ones don’t. JLF’s John Hood discusses what the data shows about economic growth in today’s column.
Last year, I conducted a literature survey of all recent studies published in academic or professional journals that examined the relationship between government policies and state economic performance. From 1992 to 2013, there were 31 studies of economic freedom indexes. In 24 of them (77 percent), higher economic-freedom scores were associated with higher economic performance after adjusting for other factors. In the remaining seven studies, there was no statistically significant relationship. Not a single study found that higher economic freedom — which primarily means lower taxes, spending, and regulatory burdens — was statistically associated with lower economic growth.
A 2012 paper in the International Journal of Economics and Finance, for example, found that states with higher economic freedom tend to attract higher levels of investment from foreign firms, which then leads to more economic growth. A 2007 study in the Southern Economic Journal found that states attract another form of valuable capital, people, to the extent they embrace economic freedom.
Freedom. Embrace it and you will prosper. Reject it and you will stagnate.
