Lawson's Economic Freedom Bet

Nine years ago, Bob Lawson proposed the following bet. As far as I know, no one took the bait. How’s he doing so far? Leave calculations in the comments.

---

In the face of Jeff Sachs’ challenge, Bob Lawson proposes a bet on economic freedom:

“Dear Tyler,

I read with obvious interest your post (and the paper itself) about the endogeneity of institutions. Leaving aside my issues with the IV literature, I decided to take the bait regarding Jeff Sachs’ challenge to, “Go back to 1960 and choose any measure of institutional quality you want. Then see how well it predicts cross-national growth since then.”

Ok, I will.

The Economic Freedom of the World (EFW) index was first published in the mid 1990s, and the first year of data is 1970. So I’ll have to start in 1970 instead of 1960.

Here is a regression with growth from 1970-2010 on the lhs, and EFW and GDP per capita in 1970 on the rhs.

[…]

A one-unit higher EFW score in 1970 correlates to 0.84 percentage points in higher annual growth over the next 40 years. A one unit EFW score improvement during the first decade, 1970 to 1980, correlates to a 1.00 percentage point higher annual growth rate over the 40 years.

I don’t know if that satisfies Jeff Sachs’ challenge, but it works for me.

Lawson’s bet:

Looking forward, I’ve constructed a back-of-the-envelope indicator that combines each country’s EFW rating in 2000 and with its change from 2000-2010. The top 20 (combined highest level & most positive change) versus the bottom 20 (combine lowest level & most negative change) countries are:

Top 20                 Bottom 20
Hong Kong          Haiti
Romania              Cameroon
Rwanda               Senegal
Singapore           Guinea-Bissau
Bulgaria               Mali
Cyprus                 Bolivia
Unit. Arab Em.     Algeria
Chile                    Guyana
Mauritius             Gabon
Lithuania             Ecuador
Slovak Rep          Burundi
Albania                Cote d’Ivoire
Jordan                 Chad
Switzerland         Togo
Bahamas             Congo, Rep. Of 
Malta                  Central Afr. Rep.
Taiwan                Argentina
Korea, South      Myanmar
Finland               Zimbabwe
Estonia               Venezuela

I’m willing to bet anyone $100 (up to 10 people) that the Top 20 group will outgrow the Bottom 20 group by at least 1 full percentage point per year (on average) over the the next 20 year period (2015-2035).

Who will accept the challenge?

The post appeared first on Econlib.