Using Economic Freedom and Statistical Analysis to Teach Principles of Macroeconomics
Ryan, Matt E., Journal of Private Enterprise
As statistics becomes further entrenched within economics, administrators' desire to see statistics woven into a range of economics offerings increases. This article presents a means by which to incorporate statistical concepts into a principles-level macroeconomics course while reinforcing the role that economic freedom plays in generating superior economic outcomes.
JEL Codes: A20,A22
Keywords: Economics education; Teaching of economics; Macroeconomics; Statistics; Economic freedom
As the economics profession waxes empiric and the world at large becomes increasingly data-driven, so, too, does the emphasis on statistics for undergraduates. While students typically have had the option of pursuing quantitative analysis through statistics and econometrics, many business schools now require courses in statistics in order to receive a degree. Economics majors often must show further proficiency in econometrics and/ or forecasting techniques. However, while increased quantitative skills offer value to students both in the classroom and on the job market, students tend to be less than eager when confronted with the subject of statistics.
Increasing quantitative skills, while beneficial, should also be viewed with a modicum of caution. Arming students with ever-more statistical tools raises the opportunity for rote computation absent economic reasoning to occur along with the dangers that aggregate from performing such blunders. Instead of slogging through compulsory statistical exercises in order to satisfy course requirements, the following exercises allow students to utilize World Bank data and draw unique conclusions based upon their particular analysis by pairing quantitative methods with economic analysis. Furthermore, the particular nature of these assignments allows the importance of economic freedom to emerge both to the individual student (when the student completes the assignment) and to the class as a whole (when the results are aggregated).
The following exercises were used in a principles-level macroeconomics course in the 2011 spring semester at Duquesne University to achieve the goal of incorporating statistical analysis with economic reasoning to confirm the critical importance of economic freedom. The data for these exercises come from two publicly available data sets. The first source is the World Bank's World Development Indicators, available at http://data.worldbank.org. The formerly subscription-only data set contains more than 1,100 separate series for more than 200 countries since 1960, covering traditional economic indicators along with a wide range of other areas of interest such a health, education, and environment.1 The second source is the Fraser Institute's Economic Freedom of the World, available at http://www.freetheworld.com. First published in 1996, this report looks to characterize the amount of economic freedom evident in countries around the world.2 The most recent report provides an overall economic freedom score, derived from five subcategories, for 141 countries annually from 2000 to 2008 and every five years from 1970 to 2000. These are the only data required for the statistical analysis portion of the assignments.
There are two stages to each assignment. First, students complete the assignment as it individually pertains to them. Students are assigned a country at the beginning of the semester, so the outcome of each student's work will be unique. Second, results from various statistical tests are aggregated across the class and presented as a whole to give a data-based picture of the world. For a more descriptive analysis, please see the sample assignment presented below.
The assignments also allow for the student to aggregate countryspecific information toward completing an original research paper by the end of the semester. Not only do the assignments provide a store of country- specific data to access, but completing the assignments over the course of the semester allows for potential research ideas to emerge. …