Economic Freedom and Crises

Image result for capitalism crisis gif
Ha. No.

Economic crises are often blamed on the abstraction “capitalism.” But does economic freedom lead to economic crisis? A new study argues ‘no’:

In this paper, I explore the politically contested association between the degree of capitalism, captured by measures of economic freedom, and the risk and characteristics of economic crises. After offering some brief theoretical considerations, I estimate the effects of economic freedom on crisis risk in the post-Cold War period 1993–2010. I further estimate the effects on the duration, peak-to-trough GDP ratios and recovery times of 212 crises across 175 countries within this period. Estimates suggest that economic freedom is robustly associated with smaller peak-to-trough ratios and shorter recovery time. These effects are driven by regulatory components of the economic freedom index.

An ungated version of the paper can be found here. Check it out.