Well-Being and Economic Freedoms in OECD

Abstract

OECD countries represent advanced market economies. Well-being in OECD countries can be measured by Better Life Index (BLI). In this paper, firstly, two composite indices are built for BLI and Freedom Index (FI) based on principal component analyses of the 24 individual wellbeing variables and 10 economic freedom variables for 2013-2016. The purpose is to study the effect of the composite FI and the individual economic freedoms on the composite BLI. This is done by linear regressions between the indices and, separately, between individual freedoms and the BLI. Also, GDP per capita is included into regressions. Then, multiple correspondence analysis (MCA) is conducted on categorized 2016 data for further insights. The approach leads to several findings: countries in higher quartiles measured by BLI are related to higher freedom index; while GDP per capita explains about 51% (R2) of BLI using a univariate regression, the freedom index explains as much as 69%. Multiple correspondence analysis shows that countries belonging to the two highest quartiles, measured by BLI, are very similar and they are related to very high and high levels of freedoms and GDP, while the countries belonging to lowest and second lowest BLI quartiles form both clearly separate groups and are related to low freedoms and GDP and medium-level freedoms and GDP, respectively. Freedoms related to monetary and fiscal policies were not found significant in line with earlier literature suggesting that the policies can create wellbeing.