The European Journal of Comparative Economics

ISSN: 1824-2979

EJCE Year: 2013, April. Volume: 10 - Issue: 1

A Random Walk to Economic Freedom?

by Frank Hefner ; Mark David Witte

Start page: 27 - End page: 47

Keywords: economic freedom index, random walk, growth

Jel code: P5; P00; H1

Abstract:

Given the wide use of economic freedom in economic literature it is imperative to understand how economic freedom evolves. Results suggest that levels of economic freedom are dominated by random shocks. Using a test for stationarity devised by Westerlund and Larsson (2012) we are unable to reject the null hypothesis of a random walk. The changes to economic freedom also are mostly driven by random shocks with only a minor role played by country specific characteristics. Additionally, changes to economic freedom are partially reversed as increases (decreases) in one year are partially offset by decreases (increases) in the next year.

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