Economic freedom and Economic growth in ECOWAS: Does colonization heritage matter?

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Economic freedom and Economic growth in ECOWAS
Does colonization heritage matter?
By
Felix Fofana N'Zué, Ph.D.
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Plan de Présentation
I- Introduction
II- Stylized facts
III- Brief review of Selected literature
IV- Theoretical Framework, Data and Method of
Analysis
V- Empirical Results
VI- Conclusion
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I- Introduction
Definition of Economic Freedom
? all liberties and rights of production,
distribution, or consumption of goods and
services. It provides an absolute right of
property ownership fully realized freedoms of
movement for labor, capital, and goods and an
absolute absence of coercion or constraint of
economic liberty beyond the extent necessary for
citizens to protect and maintain liberty itself
(Beach and Tim, Heritage Foundation)
? Individuals have economic freedom when (a)
property they acquire without the use of force,
fraud, or theft is protected from physical
invasions by others, and (b) they are free to
use, exchange, or give their property to another
as long as their actions do not violate the
identical rights of others (Gwartney et al. , the
Fraser Institute,).
In trying to explain the plight of
underdevelopment in general and especially in
Sub-Saharan African countries, several scholars
including Grier (1999 and 1997), Bertocchi and
Canova (1996, 2002) etc., have identified
colonial heritage as a key determining factor.
For these scholars the colonial heritage of
sub-Saharan African countries has a bearing on
how well these countries handle economic
challenges and how in general they react when
faced with unusual events
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I- Introduction
These specific indices taken from Beach and Tim
(2008) are

• Business freedom which is the ability to create,
  operate and close an enterprise quickly and
  easily

• Trade freedom is a composite measure of the
  absence of tariff and non-tariff barriers

• Fiscal freedom is a measure of the burden of
  government from the revenue side. It includes
  both the tax burden (tax rate on income) and the
  overall amount of tax revenue (tax revenue to GDP
  ratio)

• Government size is define to include all
  government expenditures, including consumption
  and transfers

• Monetary freedom combines a measure of price
  stability with an assessment of price controls

• Investment freedom is an assessment of the free
  flow of capital (especially foreign capital)

• Financial freedom is a measure of banking
  security as well as independence from government
  control

• Property rights is an assessment of the ability
  of individuals to accumulate private property,
  secured by clear laws that are fully enforced by
  state

• Freedom from corruption is based on quantitative
  data that assess the perception of corruption in
  business environment.

• Labor freedom is a composite measure of the
  ability of workers and businesses to interact
  without restriction by the state.

Each of the above freedom index is graded using a
scale from 0 to 100 where 100 represents maximum
freedom
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I- Introduction
Former British colonies outperform former French
colonies in terms of economic performance.
Reasons

• More educated

• More decentralized style of colonization (no
  assimilation)

• No imposed constitution

• Vernacular languages accepted for education

• Colonies not forced to give British goods
  preferential treatment

• The French established institutions and customs
  that were not conducive to development and growth
  after the colonial period

• Francophone Africans are portrayed to be abstract
  and evasive in their dealings, no risk taking and
  very sly

• Anglophone Africans are portrayed as pragmatic,
  direct in their dealings, risk taking, more
  entrepreneurial and above all they speak their
  mind out.

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I- Introduction
Development policies implemented in ECOWAS
countries especially economic reforms will have
different outcomes depending on their colonial
heritage.

• How relevant is such statement, 50 years of
  independence?

• Does colonial heritage still matter in the
  successful implementation of economic reforms?

• What to do if colonial heritage appears to matter
  significantly?

Objective

• Contribute to the understanding of the factors
  affecting the relationship between economic
  freedom and economic growth with a special focus
  on the impact of the colonial heritage.

• Determine the impact of colonial heritage of
  selected African countries on their economic
  performance and on the outcome of the
  relationship between economic freedom and
  economic performance.

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II- Stylized facts
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II- Stylized facts (Cont)
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III- Brief Review of Selected Literature

• Colonization matters

• Bertocchi and Canova (1996 2002)

• Grier (1997)

• Brown (2000)

• Colonization does not matter

• Acemoglu et al. (2001)

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IV- Theoretical Framework, Data and Method of
Analysis
Productionf(Labor, Capital, Economic Freedom,
Others)
Others? Openness, Life expectancy
Data

• The Heritage Foundation/Wall Street Journal
  annual Index of Economic Freedom

• World Development Indicators 2009

• The time period runs from 1995 to 2008.

Former British colonies
The Gambia, Ghana, Nigeria and Sierra Leone
Former French colonies
Benin, Burkina Faso, Cote dIvoire, Guinea, Mali,
Niger, Senegal and Togo
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V- Empirical Results

• Economic freedom is not a statistically
  significant determinant of economic performance
  in ECOWAS countries unlike previous studies

• However, in line with past works our empirical
  results suggest that economic freedom could have
  a positive impact on economic performance in the
  ECOWAS countries

• Although positive, it is not significant implying
  that for the sample under investigation,
  colonization did not matter

• Consistent unidirectional causality running from
  economic performance to economic freedom.

• Government freedom could be harmful to economic
  performance

• Thus in former French colonies government and
  monetary freedoms impact economic performance
  more than they do in former British colonies.

• However, when the freedom index is interacted
  with the colonization variable it is the former
  British colonies that are better off. Indeed, it
  can be observed that although former French
  colonies maintained a very low inflation rate

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VI- Conclusion
This paper investigated the factors affecting the
relationship between economic freedom and
economic growth with a special focus on the
colonial heritage of ECOWAS countries.
Findings

• Level of economic freedom is not an important
  determinant of economic performance in ECOWAS
  countries

• Colonial heritage does not matter in general for
  economic performance.

• It is economic performance that causes economic
  freedom and not the other way round

• The colonial heritage of English speaking
  countries together with government and monetary
  freedoms impact their economic performance more
  than it does with French speaking countries

• Fiscal freedom together with colonization
  variable impacted former British colonies more
  than they impacted their French counterparts

• Government freedom could be harmful to economic
  performance in ECOWAS countries

• The colonial heritage together with monetary
  freedom has improved economic performance in
  former British colonies more than former French
  colonies

In light of the above, it is clear that although
colonial heritage does not matter in general
terms for economic performance, it does matter
for government and monetary freedoms. It is
therefore important that peculiarities of
countries are taken into consideration when it
comes to specific policy reforms.
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Thank you for your Time