Academic journal article Journal of Economic Development

Examining Friedman Hypothesis on Political, Civil and Economic Freedom for Saarc Countries: A Dynamic Panel Data Analysis

Academic journal article Journal of Economic Development

Examining Friedman Hypothesis on Political, Civil and Economic Freedom for Saarc Countries: A Dynamic Panel Data Analysis

Article excerpt

This paper empirically examines the Friedman hypothesis on political, civil and economic freedom that, a country can have a high degree of civil freedom, and a high degree of economic freedom without any political freedom, but can not have any political freedom if it does not have some degree of civil and economic freedom. Using panel data of five SAARC countries over the period 1995-2011, the dynamic panel data econometric techniques and Granger-causality tests validated the Friedman hypothesis regarding economic and political freedom, but regarding civil and political freedom the reverse is found true. The estimates of the empirical model using UECM show that economic freedom has significant short-run and long-run effects in improving the political freedom in the SAARC region.

Keywords: Political Freedom, Civil Freedom, Economic Freedom, Dynamic Panel Data

JEL classification: F49, O5, P5

(ProQuest: ... denotes formulae omitted.)

1. INTRODUCTION

The world has experienced unprecedented democratic wave during the last four decades that Samuel Huntington (1993) called the "Third Wave" of democratization. The revolution of freedom that began in the 1970s was amplified by the collapse of Communism in the 1990s and the widespread acceptance of the economic policies of the "Washington consensus". This freedom boom reversed the earlier trend toward state intervention and socialism, which began to take hold at the beginning of the twentieth century (Rosa and Vanssy, 1995). The freedom boom has been observed in political democracy and freedom, and civil and economic freedom which have been accompanied by a movement towards competitive markets, liberalization, and the globalization of previously closed economies. This as Milton Friedman called "The Tide Is Turning".1

Milton Friedman in his famous book Capitalism and Freedom (1962) made one of the most influential arguments for economic liberalism at a time when the ideas of liberals (in the traditional sense) were distinctly unfashionable. The world-wide shift from autocracy toward civil and economic freedom and democratization has led to substantial research on the interrelationship between various freedoms. In Capitalism and Freedom, Friedman sought to establish an argument about the interconnectedness of economic and political freedom, known as "liberal hypothesis" or "Friedman hypothesis" which asserts that economic freedom is an indispensable means towards achievement of political freedom. According to Friedman (1962, p. 10) "History suggests only that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition".

With the development of the relationship between economic freedom and political freedom, a third category of freedom has been added to the mix in the subsequent years, namely social or civil freedom. Friedman himself has argued for the need of such addition in a number of lectures.2 He said, "I've grown increasingly to think that we need to make three classifications (of freedom) instead of two: economic freedom; social or civil freedom; and political freedom. ... You can have a high degree of social freedom, and a high degree of economic freedom without any political freedom. What's not clear is whether you can have any political freedom if you don't have some degree of the other freedom" (2002, p. 17). This is the new version of the Friedman Hypothesis.

This paper aims to offer evidence concerning the direction of the trichotomic causation between measures of economic, civil and political freedom, and examines whether Freidman's New Hypothesis holds in case of South Asian Association of Regional Cooperation (SAARC), using panel data set of five SAARC member countries over 1995-2011 period. South Asia, a region of about 23 percent of global population having only 2 percent of global income, finds itself in the midst of significant economic, political and social transformation since the early 1990s. …

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