What Factors Drive Cross-Country Economic Freedom Convergence?

Abstract

Are the economic freedom levels of all countries converging now that the Cold War is over? If not, are they converging into a subset of economic freedom groups or 'clubs' based upon underlying legal origins and country characteristics? This study investigates these questions using recent methodological developments in panel data convergence analysis. Our tests indicate non-convergence of economic freedom across all countries. However, club convergence tests reveal three distinct convergence clubs. Our subsequent results demonstrate that countries belonging to the higher economic freedom convergence clubs are less likely to have French legal origin and lower reliance on natural resource rents, and more likely to have long tenured and democratic governments, easier exitability, more net migration, faster economic growth, more control of corruption, as well as more elderly and dense populations.