The Relationship between Economic Freedom and Poverty Rates: Cross-Country Evidence

Abstract

We study the relationship between economic freedom and poverty rates in 151 countries over a twenty-year period. Using the World Banks poverty headcounts of those living on less than $1.90 per day, $3.20 per day, and $5.50 per day, we find evidence that economic freedom, measured by the Heritage Foundations Index of Economic Freedom, is associated with lower poverty rates. We also test the effect of various components of the Index of Economic Freedom.We find thata governments integrity and a countrys trade freedom are associated with lower poverty rates. We check the robustness of our results using alternative freedom indices.