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 Bank’s 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 Foundation’s 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 that a government’s integrity and a country’s trade freedom are associated with lower poverty rates.