The long-run dynamics of economic liberty, 1850–2020

Abstract Economic liberty signifies the absence of coercion and interference in the actions of economic agents. Indices of economic freedom have been available since the late twentieth century, but we have lacked a long-term perspective. This paper examines economic freedom in a sample of 21 OECD countries over the past 170 years using a new Historical Index of Economic Liberty (HIEL), which revises and improves upon my earlier attempt to develop a historical index of economic freedom. Since the country sample represents a significant share of global-economic activity, this historical overview reflects economic freedom beyond the OECD club. Long-term gains in economic freedom reached nearly two-thirds of its maximum potential. The growth of economic freedom was abruptly halted by the world wars and resumed after 1950, peaking in 2000 before stagnating. International openness has been its primary contributing factor, especially after 1950. While the countries rankings remained relatively stable, the gap between their levels of economic freedom gradually narrowed.