Civil Liberties, the Unbundling of Institutions and Economic Growth
Abstract: Widespread skepticism prevails among economists over a possible connection between civil liberties and the level of economic activity. Previous empirical research on economic growth has found mixed evidence on the influence of civil liberties. Arguments about which institutions matter for growth, however, continue to suggest mechanisms that highlight the importance of the human rights captured by civil liberties. In particular we will emphasize that they can work as indicators of the prevalence of the rule of law or more narrowly of the existence of property rights institutions. Disaggregation of the Freedom House Civil Liberties index allows a fresh empirical look at the effect of human rights on growth. Our results show that one of the four subcategories of the index outperforms all available indicators of property rights institutions in explaining long-term economic growth and the level of operations in investment goods markets. This subcategory, Personal Autonomy and Individual Rights, captures the level of second generation human rights that affect the mobility of individuals with respect to housing, employment and university education, as well as the level of protection of property rights. Our findings are based on cross-country data, which is subject to a variety of well known limitations. Nonetheless, one should ask why this civil liberties subcategory performs so much better than other variables using standard criteria and in the same setting.
