ECONOMIC FREEDOM ,I NSTITUTIONAL QUALITY, AND CROSS-COUNTRY DIFFERENCES IN INCOME AND GROWTH

Abstract

In the past few decades, the issues in the literature on economic growth have broadened from the development of general theories of growth, largely based on Solow (1956), toward an examination of why there are differences in growth rates across countries, and why some countries continue to grow while others stagnate at low levels of income. This study takes an institutional approach and uses a recently developed measure of institutional quality, the Economic Freedom of the World (EFW) index (Gwartney and Lawson 2003) to examine the issue of cross-country differences in income levels and growth rates. The emphasis on the importance of institutions to economic prosper-ity goes back at least to Adam Smith (1776), and has been found in the