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An international assessment of the relative contribution of economic freedom and mathematical test scores to labour productivity

Recent analyses of economic growth differentials across nations have taken the perspective of endogenous growth models, in which the long-term growth rate is determined within the model, i.e. endogenously, rather than by forces impinging from without. In this perspective, both public and private institutions affect growth and labour productivity. These institutions may include the size of government, respect of the rule of law, anti-trust regulation, patent laws, religion, and the degree of market competition in various sectors of the economy, among others. While the set of endogenous determinants is potentially quite large, researchers have focused on two categories of endogenous determinants of growth in labour productivity, broadly speaking: institutions of education and the development of human capital, and institutions of political and economic freedom. The present study attempts what previous studies have not done, namely, to examine both freedom and education, and draw inferences regarding their relative power in explaining international comparisons of labour productivity. We find that while both education and freedom correlate positively and significantly with labour productivity, freedom is the more powerful explanatory variable of the two.