Free to escape? Economic freedoms, growth and poverty traps

Abstract

New evidence on the relationships between economic freedoms and poverty traps is provided. Methodologically, a new way to classify countries into clusters is used, which stresses the relative position of economies with respect to each other. The paper investigates whether economic freedoms have any impact on shifts from one cluster to another, towards either better or worse situations. Moreover, it analyzes the contribution of economic freedoms to avoid falling into a poverty trap. The impacts of the five macro-components of the index are studied separately. The results show that economic freedoms help economies to grow and to avoid poverty traps.