Individualism and Economic Freedom

ABSTRACT Does the Fraser Institute's Economic Freedom Index (EFI) constitute, as its proponents claim, a coherent measure of a classically liberal approach to economic governance? Noting the central role of individualism to liberalism, we provide evidence on this claim by investigating the empirical relationship between individualism and the EFI. Our findings suggest that there is a strong, positive relationship between individualism and the EFI. This relationship is robust to the use of alternative measures of individualism, to controls for a wide range of historical, cultural and institutional variables, and to the use of instrumental variable methods to address measurement and endogeneity issues. We also find evidence of a strong positive, causal relationship between individualism and four of the five components of the EFI. While these findings broadly support the claim that the EFI provides a measure of a classically liberal approach to economic governance, they also present challenges the empirical literature on the EFI. In particular, it is unclear whether liberal economic policies or the individualist values that underlie these policies are responsible for the positive relationship between the EFI and measures of social welfare.