Is There A "Right" Economic Model?

I did this last quater and found it pretty interesting... interesting enough to put on the world wide web. My goal was to see if things like political freedom and economic freedom actually result in higher economic success. I'm took 75 nations GDPs and GDP per capita along with
various indexes that rate a countries political freedom, economic freedom, and other factors (like the Gini index). Then I ran regressions in Stata.

I was attempting to see if there really is a 'right' economic model. Is political freedom really linked to economic success?

. regress gdpperheadjuly06 corruption educationindex giniindex

Source | SS df MS Number of obs = 69
-------------+------------------------------ F( 3, 65) = 109.68
Model | 9.1232e+09 3 3.0411e+09 Prob > F = 0.0000
Residual | 1.8023e+09 65 27727596.8 R-squared = 0.8350
-------------+------------------------------ Adj R-squared = 0.8274
Total | 1.0926e+10 68 160669314 Root MSE = 5265.7

gdpperhea~06 | Coef. Std. Err. t P>|t| [95% Conf. Interval]
corruption | 4053.809 356.2398 11.38 0.000 3342.349 4765.269
educationi~x | 164.1843 49.64804 3.31 0.002 65.03035 263.3383
giniindex | -155.0763 71.0601 -2.18 0.033 -296.9931 -13.15944
_cons | -11578.94 5302.031 -2.18 0.033 -22167.83 -990.0573

The adjusted r-squared statistic is strong along with all the t-statistics for the variables. It is clear from the results that the corruption index is the most important variable in this regression. The index is ranked such that the higher the number (10 being perfect) the lower the corruption in the country (theoretically a score of 10 would mean zero corruption in the country). From this data, the less corruption there is in the country, the higher the country's GDP per capita. According to the coefficient, a one unit increase in the corruption score would increase a country's GDP per head by over $4,000. Likewise, a one unit increase in a country's education index (a perfect score being 100) would lead to an increase of $164 in the GDP per capita in the country (since the corruption score has a perfect score of 10 and the education index has a perfect score of 100, adjusting the figures so that the education index is equal to the corruption index by multiplying the education index by 10, an increase would equal a $1,641 increase in the GDP per capita if comparing it to corruption). Finally, the Gini Index shows that the larger the wealth inequality in the country, the lower the GDP per capita in the country. In this case a one unit increase in the Gini Index leads to a loss of $155 per person in the country (again to make the numbers in the index equal to that of the corruption index, a ten unit increase in the Gini Index would equal a loss of $1,550 GDP per capita in the country).

My project provides some interesting results and is a good start to building a database that could yield more accurate results. But it is only a start. It would be foolish to make any sweeping conclusions from this econometric project. I am only looking at one period of time and that may be why factors such as political freedom and open or free markets appear to have little effect on a countries GDP per capita. Both political and economic freedom are policies that are implemented at different times, over different periods of time, to varying degrees in every country. Looking at only the most current information may not fairly show the effects of these policies. Of course, it may be the case the liberalized markets and political freedoms do have little effect on a countries economic performance, but in order to make a conclusion like that, I would have to go back and collect data from these index over time (or track them in the
future). Also the use of indexes may raise questions of bias in the data. Indexes, it can be argued, are somewhat subjective in the collection of information and definition of such categories. But for lack of better measurement of ideas such as political freedom, it may be the best way to measure something such as how free the people living in a particular country are.

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