Transcript I- Introduction

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
Figure 2. Evolution of per capita GDP growth for
ECOWAS countries from 1995-2008
400.0
6.00
350.0
5.00
Per capita GDP growth
Real GDP per capita
Figure 1: Evolution of Real GDP per capita for
ECOWAS countries from 1995-2008
300.0
250.0
200.0
150.0
100.0
4.00
2.10
3.00
2.00
1.00
0.00
-1.00
1996199719981999200020012002200320042005200620072008
-2.00
-3.00
English Speaking
ECOWAS Agerage
French Speaking
English Speaking
ECOWAS Average
Figure 4. Evolution of Trrade Freedom index for
ECOWAS countries from 1995-2008
Figure 3. Evolution of Overall Economic Freedom
Index for ECOWAS countries from 1995-2008
70.0
56.0
55.0
54.3
54.0
53.0
53.5
52.0
51.0
50.0
Trade Freedom Index
Overall Economic freedom index
French Speaking
60.0
50.0
40.0
30.0
20.0
49.0
10.0
19951996199719981999200020012002200320042005200620072008
French Speaking
English Speaking
ECOWAS Average
French Speaking
English Speaking
ECOWAS Average
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II- Stylized facts (Con’t)
Figure 6. Evolution of Freedom from Corruption index
for ECOWAS countries from 1995-2008
40.0
Freedom from corruption
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
19951996199719981999200020012002200320042005200620072008
French Speaking
English Speaking
French Speaking
ECOWAS Average
English Speaking
ECOWAS Average
Figure 8. Evolution of Fiscal Freedom Index for
ECOWAS Countries from 1995-2008
Figure 7. Evolution of Business Freedom Index for
ECOWAS countries from 1995 - 2008
90.0
70.0
80.0
60.0
Fiscal Freedom Index
Business Freedom Index
Monetary freedom index
Figure 5. Evolution of monetary Freedom Index for
ECOWAS countries from 1995-2008
50.0
40.0
30.0
20.0
10.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
0.0
19951996199719981999200020012002200320042005200620072008
French Speaking
English Speaking
ECOWAS Average
French Speaking
English Speaking
ECOWAS Average
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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
Y  F ( L, K , IEF, X )
Production=f(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 d’Ivoire, 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
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