1. ECONOMIC FREEDOM & RECOVERY
FROM RECESSION KEVIN
DUNCAN
JADYN
NAYLOR
INTRO
We examine whether economic freedom helped
or hindered the ability of a state’s economy to
recover from the Great Recession. We expect
states with greater economic freedom to recover
from the financial crisis quicker than their
counterparts.
METHOD
We test our hypothesis by examining the
degree to which the Fraser Institute’s
economic freedom rankings correlated
with various indicators of economic health
in each state using a fixed effects time
series regression analysis.
RESULTS
Our model provides evidence against the
government's faith in Keynesian economic
theories, theories which encourage
government manipulation of currency and
interest rates to counteract fluctuations in
the economy.
CONCLUSION
While trust in markets to correct themselves is all
but nonexistent at the federal level, our results act
as a first level empirical test to show that this
distrust is unjustified.
Economic freedom correlates with better economic
health through a recession because prices and
other economic indicators are less distorted. This
allows actors in the economy to make more sound
economic decisions.
“The freest economies operate with
minimal government interference,
relying upon personal choice and
markets to answer basic economic
questions such as what is to be
produced, how it is to be produced,
how much is produced, and for whom
production is intended.”
Retrieved from the Fraser Institute’s
Economic Freedom of North America
GDP
Jobs
Linear (GDP)
Linear (Jobs)
RECOVERY TIME BY ECONOMIC FREEDOM SUMMARYREGRESSION
ANALYSIS
5th Quintile
LEAST FREE
4th Quintile
1st Quintile
MOST FREE
2nd Quintile
3rd Quintile
Randy Simmons
Utah State University
Economics and Finance
randy.simmons@usu.edu
Ryan Yonk
Utah State University
Economics and Finance
ryan@strata.org
1ST
QUINTILE
MOST FREE
2ND
QUINTILE3RD
QUINTILE
MONTHS
4TH
QUINTILE5TH
QUINTILE
LEAST FREE
80
70
60
50
40
30
20
10
0
THE DIFFERENCE IN GDP RECOVERY
BETWEEN THE MOST FREE QUINTILE
AND THE LEAST FREE QUINTILE IS ABOUT
35 MONTHS OR ALMOST 3 YEARS
15 OF THE STATES WITH GREATER
ECONOMIC FREEDOM HAD PRIVATE
SECTOR JOB RECOVERY, COMPARED TO
ONLY 1 OF THE LEAST FREE STATES.
THE LEAST FREE STATES HAD AN
AVERAGE DROP IN GDP OF 5.2% WHERE
THE MOST FREE DROPPED ONLY 3.9%
THE AVERAGE GDP RECOVERY ACROSS
ALL STATES WAS 32.27 MONTHS
THE AVERAGE PRIVATE SECTOR JOB
RECOVERY ACROSS ALL STATES WAS
NEARLY 65 MONTHS
UTAH RECOVERED ALMOST A YEAR
QUICKER THAN THE NATIONAL AVERAGE
IN TERMS OF GDP AND 7 MONTHS
QUICKER IN TERMS OF JOBS.
.1
$7.5
BILLION
44
MILLION
JOBS
INCREASE IN A
STATE’S
ECONOMIC
FREEDOM
RANKING
LED TO AN
AVERAGE
OUR MODEL
SHOWED THAT A
INCREASE IN GDP
AND CREATED
C
M
Y
CM
MY
CY
CMY
K
Kevin & Jadyn.pdf 1 4/7/15 2:43 PM