Housing prices and economic freedom.Abstract The Economic Freedom Index of North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. measures the impact of governmental institutions. The literature finds that economic freedom leads to higher incomes. Economic freedom is a geographically defined benefit, the value of which will be capitalized into real estate values. We hypothesize hy·poth·e·size v. hy·poth·e·sized, hy·poth·e·siz·ing, hy·poth·e·siz·es v.tr. To assert as a hypothesis. v.intr. To form a hypothesis. that more economic freedom should lead to higher home prices, ceteris paribus Ceteris Paribus Latin phrase that translates approximately to "holding other things constant" and is usually rendered in English as "all other things being equal". In economics and finance, the term is used as a shorthand for indicating the effect of one economic variable on . Our findings support our hypothesis. Through a variety of direct and indirect effects, economic freedom influences the quality of life. States that are more economically free are more attractive places to live, and the benefits accruing to more economic freedom are capitalized into home prices. I. Introduction Higher values of the Economic Freedom Index of North America (Karabegovic, Samida, Schlegel, and McMahon, 2003), an index measuring a constellation Constellation, ship Constellation (kŏnstĭlā`shən), U.S. frigate, launched in 1797. It was named by President Washington for the constellation of 15 stars in the U.S. flag of that time. of government policies (hereafter In the future. The term hereafter is always used to indicate a future time—to the exclusion of both the past and present—in legal documents, statutes, and other similar papers. the freedom index) has been linked to higher income (Karabegovic, Samida, Schlegel, and McMahon, 2003; Karabegovic and McMahon, 2005), more business venturing and entrepreneurship (Campbell and Rogers, 2007; Kreft and Sobel, 2005), and population in-flow (Ashby, 2007). The freedom index measures the impacts of governmental institutions, which largely stop at a state's borders. Thus a state's policies and institutions consistent with economic freedom constitute a geographical benefit. The value of geographically defined benefits will be capitalized into home prices. We hypothesize that more economic freedom should lead to higher home prices, ceteris paribus. Gwartney and Lawson (2002), Farr, Lord, and Wolfenbarger (1998), Gwartney, Lawson, and Holcombe (1999), Cole (2003), and Powell (2003) emphasize how economic freedom promotes economic prosperity and growth around the world. Kreft (2003), Kreft and Sobel (2005), and Wang (2005) apply the Economic Freedom Index of North America to questions of income, income growth, and entrepreneurship, while Ashby (2007) applies the index to migration patterns. In general, these and other papers find that pro-freedom national/state institutions are causally related to income growth, entrepreneurship, and immigration immigration, entrance of a person (an alien) into a new country for the purpose of establishing permanent residence. Motives for immigration, like those for migration generally, are often economic, although religious or political factors may be very important. . Entrepreneurship and migration are associated with economic development (Mora MORA, In civil law. This term, in mora, is used to denote that a party to a contract, who is obliged to do anything, has neglected to perform it, and is in default. Story on Bailm. Sec. 123, 259; Jones on Bailm. 70; Poth. Pret a Usage, c. 2, Sec. 2, art. 2, n. and Davila, 2006; Acs and Storey, 2004). Higher income is associated with lower crime rates and diminished public corruption (Glaeser and Saks, 2006). Growing and increasingly affluent populations will put upward pressure on home prices. In addition to these indirect influences on home prices, people may value also value economic freedom intrinsically. Such notional value Notional Value The total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets because in them a very little amount of invested money can control a large position (have a large consequence for the trader). (as opposed to instrumental value) of freedom is also expected to exert upward pressure on home values. Using the New Institutional analytical framework (North, 1981; Hayek, 1960), institutional choices lead to economic and social outcomes. Causality causality, in philosophy, the relationship between cause and effect. A distinction is often made between a cause that produces something new (e.g., a moth from a caterpillar) and one that produces a change in an existing substance (e.g. runs from institutions and policies to outcomes, rather than the other way around. While governments cannot select a vector of economic shocks, they can select policies; governments can select whether to embrace economic freedom. Thus, economic freedom (institutional choice) yields higher incomes, greater entrepreneurship, lower crime rates, and less corruption, as well as notional value. One way in which residents will capitalize these value streams accruing to a locale's freedom is through housing appreciation. Accordingly, we estimate models of housing price change. Our primary measure for home price change is the Office of Federal Housing Enterprise Oversight's (OFHEO OFHEO Office of Federal Housing Enterprise Oversight (US HUD) ) House Price Index (HPI HPI abbr. history of present illness ). Our findings support our hypothesis; namely, that states with more economic freedom experience greater housing values, ceteris paribus. Through a variety of direct and indirect effects, the political policies and institutions summarized in the freedom index influence the quality of life in their respective states. States that are more economically free are more attractive places to live. Stipulating that the supply of housing is not perfectly elastic in the short run, the benefits accruing to more economic freedom are capitalized into home prices. II. Literature Review The literature review is divided into two subsections. The first subsection subsection Noun any of the smaller parts into which a section may be divided Noun 1. subsection - a section of a section; a part of a part; i.e. describes the literature on the freedom indices with an explanation of how the Economic Freedom Index of North America is constructed and how it is used in this study. The second subsection provides an overview of relevant literature on housing prices with an explanation of the index used in this study. 1. Economic Freedom of North America Freedom indexes of the world have established themselves as fixtures in the social sciences literature, especially in the economic growth literature (see, for example, recent work by Atukeren, 2005; Berggren and Jordahl, 2005; and Gwartney, Lawson and Clark, 2005). Researchers have used these indices or their constituent components as regressors to explain income or income growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. . At root, this literature concerns the relationship between "institutions" and their impact on observed economic outcomes (e.g., North, 1981). While governments cannot select a vector of economic shocks, they can select policies. Thus, the literature argues that primary causality runs from institutions to policies and then to income, rather than the other way around. Across the literature, this new institutional view has been supported; the consistent finding is that economic freedom, as measured by the various indices, is significantly and positively related to economic well-being. Citizens of nations with more economic freedom enjoy higher incomes, and as an economy becomes freer, incomes rise. The Karabegovic, Samida, Schlegel, and McMahon (2003) study, "Economic Freedom of North America," presents a conceptually similar index (the "freedom index") featuring economic freedom differences between U.S. states A U.S. state is any one of the fifty subnational entities of the United States, although four states use the official title "commonwealth". The separate state governments and the federal government share sovereignty, in that an American is a citizen both of the federal entity and and Canadian provinces Noun 1. Canadian province - Canada is divided into 12 provinces for administrative purposes province, state - the territory occupied by one of the constituent administrative districts of a nation; "his state is in the deep south" rather than the difference between nations. Similar to world freedom indices researchers, Karabegovic et al, argue that economic freedom--proxied by their index--will be positively related to income levels and income growth. They use their index to explain income differences among the states, offering evidence that the freedom index is significantly, positively related to state levels and growth of economic activity. Karabegovic et al., choose to group ten variables--usually expressed as ratios of GSP--into three categories: size of government, takings and discriminatory dis·crim·i·na·to·ry adj. 1. Marked by or showing prejudice; biased. 2. Making distinctions. dis·crim taxation, and labor market labor market A place where labor is exchanged for wages; an LM is defined by geography, education and technical expertise, occupation, licensure or certification requirements, and job experience freedom. For size of government, the authors measured general consumption expenditures by government as a percentage of GSP GSP Good Scientific Practice GSP Generalized System of Preferences GSP Gross State Product GSP German Shorthaired Pointer (dog breed) GSP Geometer's Sketchpad (KTP Technologies geometry software) GSP Georges St. , transfers and subsidies as a percentage of GSP, and Social Security expenditures as a percentage of GSP. For takings and discriminatory taxation, the authors measured total government revenue from own source as a percentage of GDP GDP (guanosine diphosphate): see guanine. ; top marginal income tax rate and the income threshold at which it applies; indirect tax revenue as a percentage of GSP; and sales taxes sales tax, levy on the sale of goods or services, generally calculated as a percentage of the selling price, and sometimes called a purchase tax. It is usually collected in the form of an extra charge by the retailer, who remits the tax to the government. collected as a percentage of GSP. They rate top personal income tax rates by the income thresholds at which they apply, where higher thresholds result in a lower index value. For labor market freedom, the authors measure minimum wage legislation, government employment as a percentage of total state employment, and union density. Karabegovic et al., argue that greater union density has a negative impact on economic freedom and reduces a state's economic freedom index. A number of factors affect union density, notably laws and regulations, size of government employment, and manufacturing density. Government employment is excluded, and the effect of government employment is held constant in calculating the variable. The size of the manufacturing sector has an insignificant effect on union density. (1) Please see Karabegovic, McMahon, and Mitchell (2005) for a discussion of why these variables were included and others excluded. Karabegovic et al. constructed a scale from 0 to 10 to represent the underlying distribution of the 10 variables in the index, with higher values indicating higher levels of economic freedom. In the final construction each area was equally weighted and each variable within each area was equally weighted. Karabegovic and various coauthors have calculated the index each year based on current values for each of these variables. Each subsequent annual observation creates a new index value for each American state and Canadian province. The freedom index is a relative ranking of economic freedom across provinces and states, respectively, and across time. We use the data set from 1989-2001, inclusive. To demonstrate the range of values, Tables 1a and 1b show a list of the 10 states with the highest economic freedom scores and the ten states with the lowest economic freedom scores for 2001. 2. Housing Prices The value of geographically defined benefits or amenities will be compounded into local real estate values, including home prices. In a series of papers, Brasington and co-authors (Brasington and Haurin, 2006; Brasington, 2002; Brasington, 1999) investigate the relationship between school quality and home values. At root, these papers test Tiebout (1956) migration on the basis of a geographically defined benefit. For Tiebout's hypothesis to hold true, citizens must be fully informed about prices, tax rates, and government service levels, and they must have the flexibility to choose to live in a region where they can enjoy the highest level of utility. Incomplete information and positive moving costs limit the ability to migrate, making actual empirical testing less likely to find significant results. As applied to the school quality literature, the concept is that families wish to live in an area with high quality schools and are willing to relocate. As long as the supply of housing is not perfectly elastic, families migrating to a high quality region put upward pressure on home values. Brasington (1999) finds that the housing market values traditional measures of school quality, such as proficiency test proficiency test n → prueba de capacitación scores. Using spatially autocorrelated hedonic he·don·ic adj. 1. Of, relating to, or marked by pleasure. 2. Of or relating to hedonism or hedonists. [Greek h housing models, Brasington finds that higher school quality leads to higher home values. Brasington (2002) estimates the price elasticity for public school quality based on the significant and positive relationship between hedonically measured home values and school quality measures. Brasington and Haurin (2006) find a strongly positive relationship between measures of public school quality and housing prices. In a related study, Dee (2000) offers a general investigation into the capitalization of education reforms into housing values. Dee determines that court-mandated changes in school funding trigger a Tiebout response, and increased demand for housing in the affected areas capitalizes the increased educational spending into home values. To conduct our analysis, we estimate models of housing price change. Our measure of housing price change is the Office of Federal Housing Enterprise Oversight's (OFHEO) Housing Price Index (HPI) (http://www.ofheo.gov/hpi.aspx). The HPI is a measure designed to capture changes in the value of single-family homes, and is a broad measure of the movement of single-family house prices. Each quarter, Fannie Mae Fannie Mae: see Federal National Mortgage Association. and Freddie Mac Freddie Mac: see Federal Home Loan Mortgage Corporation. provide the OFHEO with information on their most recent mortgage transactions. The OFHEO combines these data with the data of the previous 29 years to establish price differentials on properties where more than one mortgage transaction has occurred. The data are merged, creating an updated historical database that is then used to estimate the HPI. The methodology used by OFHEO in computing the Index is a modified version of the Case-Shiller geometric weighted repeat sales procedure. Tables 2a and 2b show a list of the 10 states with the highest housing price scores and the ten states with the lowest housing price scores, respectively. Tables 3a and 3b combine this information to present raw data in graphic form for the top ten and the bottom ten economic freedom states with their respective housing price scores. III. Empirical Results To test our hypothesis that economic freedom leads to greater housing wealth, we compile a panel data set of the U.S. states covering 1989 through 2001. Aside from the freedom index, all other data come from government sources, including the OFHEO, the Census, the Bureau of Economic Analysis, and the Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation (FDIC), an independent U.S. federal executive agency designed to promote public confidence in banks and to provide insurance coverage for bank deposits up to $100,000. . Because of the nature of our data set and our argument that the impacts of a state government stop at the state's geographic borders, we estimate fixed effects models. In our estimates, all observations are corrected for heteroskedasticity and within-state serial correlation serial correlation The relationship that one event has to a series of past events. In technical analysis, serial correlation is used to test whether various chart formations are useful in projecting a security's future price movements. . Furthermore, all of our estimates include year effects as well, as dummy variables This article is not about "dummy variables" as that term is usually understood in mathematics. See free variables and bound variables. In regression analysis, a dummy variable for each year except 1989. In practical terms, this means we estimate a time-invariant adjustment to the intercept intercept in mathematical terms the points at which a curve cuts the two axes of a graph. term for each state. We also estimate an "ordinary" coefficient for each year to capture state-invariant time effects. Table 4 offers descriptive statistics descriptive statistics see statistics. of our final data set, while Table 5 offers correlation coefficients Correlation Coefficient A measure that determines the degree to which two variable's movements are associated. The correlation coefficient is calculated as: . We estimate a model of the form: Change in Home [Prices.sub.it] = f(Economic [Freedom.sub.it], State [Characteristics.sub.it], Year Effect Dummies), for all states i and years t. Besides the freedom index and the HPI, we observe state income per capita [Latin, By the heads or polls.] A term used in the Descent and Distribution of the estate of one who dies without a will. It means to share and share alike according to the number of individuals. , the state's median age, state population density, and the number of contemporaneous con·tem·po·ra·ne·ous adj. Originating, existing, or happening during the same period of time: the contemporaneous reigns of two monarchs. See Synonyms at contemporary. new, privately-owned housing units authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: . We argue that these variables have relatively intuitive reasons for belonging in estimates of home values. Furthermore, they allow parsimonious par·si·mo·ni·ous adj. Excessively sparing or frugal. par  si·mo estimation of a much wider variety of influences affecting
home prices. Assuming housing is a normal good, higher per capita
incomes Noun 1. per capita income - the total national income divided by the number of people in the nationincome - the financial gain (earned or unearned) accruing over a given period of time should lead to upward pressure on home prices. Median age captures some of the population dynamics Population dynamics is the study of marginal and long-term changes in the numbers, individual weights and age composition of individuals in one or several populations, and biological and environmental processes influencing those changes. in a region. For example, older median populations could indicate the immigration of retirees into a state, which would cause home values to rise. Population density is another demand-side factor. Higher densities indicate more crowding in a state, which should place a premium on real property. Contemporaneous housing authorizations is a supply-side variable. Assuming that contractors will not build housing without the expectation of selling the units at a profit, we expect that housing authorizations reflects a strong market, and will be positively associated with home prices as housing supply adjusts to housing demand. A reasonable question is whether population density and housing authorizations are functionally related. Higher population densities may signify sig·ni·fy v. sig·ni·fied, sig·ni·fy·ing, sig·ni·fies v.tr. 1. To denote; mean. 2. To make known, as with a sign or word: signify one's intent. "pent up" demand for housing. Assuming the supply of housing is not perfectly elastic, housing authorizations (new construction) would be positively related to or perhaps dependent on population density. If these variables are functionally related in our data set, using both in the same regression model may introduce multicollinearity into our estimates. Multicollinearity would bias our estimated coefficients. The correlation between housing authorizations and population density is 0.48, warranting further investigation into the possibility of multicollinearity. We conclude, however, that multicollinearity concerns are misplaced mis·place tr.v. mis·placed, mis·plac·ing, mis·plac·es 1. a. To put into a wrong place: misplace punctuation in a sentence. b. . Including or omitting population density from our models has very little effect on either the coefficients or standard errors of our other regressors, and both housing authorizations and population density are separately significant, with believable be·liev·a·ble adj. Capable of eliciting belief or trust. See Synonyms at plausible. be·liev a·bil coefficient sizes. Thus, our final model
is:
[HPI.sub.it] = [[beta].sub.0] + [[beta].sub.1][Freedom.sub.i] + [[beta].sub.2]Income per [capita.sub.it] + [[beta].sub.3]State Median [Age.sub.i] + [[beta].sub.4]Population [Density.sub.it] + [[beta].sub.5]Housing [authorizations.sub.it] + [v.sub.i] + [[mu].sub.it] We present estimates in Table 6. We obtain good fits with the data, with R-squared figures above 0.85, and F-statistics above 70. The cross-sectional (fixed) effects are jointly significant, as are the time effects. Likelihood ratio tests and F-tests indicate that the vector of non-state, non-year regressors significantly increases model fit. Furthermore, a Hausman test The Hausman test is a test in econometrics named after Jerry Hausman. The test evaluates the significance of an estimators versus an alternative estimator. If the linear model overwhelmingly validates our choice of fixed effects modeling instead of random effects modeling In statistics, a random effect(s) model, also called a variance components model is a kind of hierarchical linear model. It assumes that the data describe a hierarchy of different populations whose differences are constrained by the hierarchy. . All theoretically interesting variables have the expected sign, although median age and population density are generally insignificant. The coefficient for income is positive and significant. As per capita income increases, housing values appreciate, consistent with the argument that homes are a normal good. The coefficient for housing authorizations is positive and significant as hypothesized, indicating a robust housing market in which builders respond to a strong demand by beginning to build more homes. That is, where one finds more new homes slated for construction, one contemporaneously con·tem·po·ra·ne·ous adj. Originating, existing, or happening during the same period of time: the contemporaneous reigns of two monarchs. See Synonyms at contemporary. finds appreciating home values. We now turn to the freedom index result. In Table 6, we investigate freedom's effect on home prices from several different angles. In Model 1, we relate the HPI to the natural log of freedom. Given that the HPI is measured as percentage changes in housing values, Model 1's coefficients are best interpreted as elasticities. In Model 2, we relate the level of the freedom index to housing price changes. In Model 3, we include both the level of the freedom index and the change in the freedom index. As hypothesized, the coefficient for the freedom index is positive and strongly significant. Even after accounting for population dynamics, such as growing metropolitan areas (population density) and retiree influx (median age), and after accounting for expanding state economies (income per capita), institutions matter, ceteris paribus; an increase in economic freedom leads to an increase in housing values. Because the scale of the freedom index is arbitrary, the size of the coefficient is arbitrary. We cannot meaningfully determine the relative magnitude of freedom's impact compared to impact of the other variables. We find that states with more economic freedom, as measured by the freedom index, experience more rapid housing value appreciation, ceteris paribus. Through a variety of direct and indirect effects, the political policies and institutions leading to economic freedom influence the quality of life in their respective states. States that are more economically free are more attractive places to live. Stipulating that impacts of a state government stop at the state's geographic borders, a state's policies and institutions consistent with economic freedom constitute a geographically defined, non-tradable benefit. The value of geographically defined benefits or amenities is capitalized into local home prices, as measured by the housing price index. In Model 4 and Model 5 we decompose de·com·pose v. de·com·posed, de·com·pos·ing, de·com·pos·es v.tr. 1. To separate into components or basic elements. 2. To cause to rot. v.intr. 1. the index into its three components and their interaction terms. The freedom index is calculated as the evenly weighted product of the three "areas" of measurement. Thus, the index implicitly measures the effects of each area and their interactions. Therefore, estimates using a decomposition decomposition /de·com·po·si·tion/ (de-kom?pah-zish´un) the separation of compound bodies into their constituent principles. de·com·po·si·tion n. 1. of the index should also include the interaction terms. The "takings and discriminatory taxation" element (Area 2), and its interactions with the other areas, is insignificant in predicting the housing price index. States whose governments spend and transfer greater portions of gross state product (Area 1) experience more rapid home value appreciation. We found this result surprising. However, we can rationalize ra·tion·al·ize v. 1. To make rational. 2. To devise self-satisfying but false or inconsistent reasons for one's behavior, especially as an unconscious defense mechanism through which irrational acts or feelings are made to appear the result by arguing that more government expenditure, ceteris paribus, means more governmental services within a state. So long as people value governmental services, this value is capitalized into home prices. States with more government employment (Area 3) likewise experience more rapid home value appreciation, ceteris paribus. Again, we did not expect this result. We hypothesize that government jobs tend to be stable jobs, a valuable attribute that may be capitalized into home prices. However, in the construction of the freedom index, ceteris is not at all paribus. The freedom index jointly measures government size, taxation, and labor market liberalization lib·er·al·ize v. lib·er·al·ized, lib·er·al·iz·ing, lib·er·al·iz·es v.tr. To make liberal or more liberal: "Our standards of private conduct have been greatly liberalized . . . . We find that states with smaller governments and liberalized labor markets with less government employment experience more rapid housing value appreciation. One cannot use the housing price index to determine the "price" of a state's housing. However, the housing price index can be used to calculate housing price appreciation within a state. Thus, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Model 2, a one percent increase in a state's economic freedom index value--approximately 0.07 points, less than the year 2000 differences between North Carolina North Carolina, state in the SE United States. It is bordered by the Atlantic Ocean (E), South Carolina and Georgia (S), Tennessee (W), and Virginia (N). Facts and Figures Area, 52,586 sq mi (136,198 sq km). Pop. and Georgia or between Michigan and Maine--leads to nearly a 30 "point" increase in HPI, from 192 to 222, an appreciation of 0.16 of one percent of the "average" home's value, ceteris paribus. According to the National Association of Realtors The National Association of Realtors (NAR) is made up of residential and commercial realtors who are brokers, salespeople, property managers, appraisers, and counselors, and others working in the real estate industry. , the average home price in 2000 was $139,000. Accordingly, a one percent increase in the economic freedom index in a state would yield (approximately) $217 of home value appreciation. IV. Conclusion In this study, we hypothesized that more economic freedom should lead to higher home prices, ceteris paribus. To our knowledge, this study represents the first attempt to consider the relationship between these two variables. We extend the growing Economic Freedom Index of North America (Karabegovic, Samida, Schlegel, and McMahon, 2003) literature to consider economic freedom's effect on housing prices. Our findings support our hypothesis; namely, states with more economic freedom experience greater housing values, ceteris paribus. At the state level, the mix of government policies captured by the freedom index influence the quality of life in their respective states. States that are more economically free are more attractive places to live. As economic freedom increases, housing appreciation occurs. For state public policy officials, the results of this study (as well as the other studies using the Economic Freedom Index of North America (Karabegovic, Samida, Schlegel, and McMahon, 2003)) are rather clear. Government policies can create either a favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. or an unfavorable climate for builders, buyers and sellers in the housing market. The policies that attract entrepreneurs, additional population, and serve to increase incomes also tend to increase the value of what is for most households their largest asset. Many practical econometric e·con·o·met·rics n. (used with a sing. verb) Application of mathematical and statistical techniques to economics in the study of problems, the analysis of data, and the development and testing of theories and models. difficulties can arise in sorting out causality among economic freedom and its correlates: Do more free locales attract immigrants, spur increases in wealth and declines in crime and corruption, or do locales with rising population and income and declining crime and corruption adopt more economic freedom? After adopting the New Institutional analytical framework (North, 1981; Hayek, 1960), however, the direction of causality is plain, flowing from institutional choices to economic and social outcomes: Economic growth and development is the outcome of market and other economic shocks and government institutions and policy. While governments cannot select a vector of economic shocks, they can select policies; governments can select whether to embrace economic freedom. Several studies (Knack and Keefer, 1995; Mauro, 1995; Hall and Jones, 1999; Rodrik, 1999; Goldsmith, 1999; and Ali, 2003) show that the primary causality runs from institutions and policies to outcomes, rather than the other way around. With this paper, we establish that one way in which residents capture the concrete benefits of pro-freedom institutions is through asset appreciation of the housing stock. References Acs Z. J., and D. J. Storey. 2004. "Introduction: Entrepreneurship and Economic Development." 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He claimed the French throne when his nephew, Louis V of France, died (987) without issue, but he was set aside in . Jones. 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?" Quarterly Journal of Economics The Quarterly Journal of Economics, or QJE, is an economics journal published by the Massachusetts Institute of Technology and edited at Harvard University's Department of Economics. Its current editors are Robert J. Barro, Edward L. Glaeser and Lawrence F. Katz. , 114(1): 83-116. Hayek, F. A. 1960. The Constitution of Liberty. Chicago: University of Chicago Press The University of Chicago Press is the largest university press in the United States. It is operated by the University of Chicago and publishes a wide variety of academic titles, including The Chicago Manual of Style, dozens of academic journals, including . Karabegovic, Amela, Dexter Samida, Chris M. Schlegel, and Fred McMahon. 2003. "North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. economic freedom: an index of 10 Canadian provinces and 50 US states." European Journal of Political Economy, 19(3): 431-452. Karabegovic, Amela, Fred McMahon, and Glenn Mitchell This article is about the American talk show personality. For the Australian sports broadcaster, see Glenn Mitchell (sports broadcaster). Glenn Mitchell (September 28, 1950–November 20, 2005) was a Dallas, Texas radio personality. . 2005. Economic Freedom of North America: 2005 Annual Report. Vancouver: Fraser Institute. Knack, Stephen, and Philip Keefer. 1995. "Institutions and Economic Performance: Cross-Country Tests Using Alternative Measures." Economics and Politics, 7(3): 207-27. Kreft, S. F. 2003. Essays on Political Constraints, Incentives, and Individual Economic Behavior. Ph.D. diss diss v. Variant of dis. diss Verb Slang, chiefly US to treat (a person) with contempt [from disrespect] Verb 1. . http://kitkat.wvu.edu:8080/files/2948/Kreft_Steven_Dissertation dis·ser·ta·tion n. A lengthy, formal treatise, especially one written by a candidate for the doctoral degree at a university; a thesis. dissertation Noun 1. .pdf Kreft, Steven F., and Russell S Russell, English noble family. It first appeared prominently in the reign of Henry VIII when John Russell, 1st earl of Bedford, 1486?–1555, rose to military and diplomatic importance. . Sobel. 2005. "Public Policy, Entrepreneurship, and Economic Growth." Cato Journal, 25(3): 595-616. Mauro, Paulo. 1995. "Corruption and Growth." Quarterly Journal of Economics, 110(3): 681-712. Mora, Marie T., and Alberto Davila Alberto Davila (born August 10, 1954), is a Mexican-American who boxed during the 1970s and 1980s in boxing's Bantamweight division, and, after realizing his dream of becoming a world champion, he could not enjoy it much. . 2006. "Immigrant Self-Employment Along the U.S.-Mexico Border: An Analysis of 2000 Census Data." Social Science Quarterly, 87(1): 91-109 Nieswiadomy, Michael, and Mark Strazichich. 2004. "Are political freedoms converging?" Economic Inquiry, 42(2): 323-341. North, Douglass C. 1981. Structure and Change in Economic History. New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of : Norton. Office of Federal Housing Enterprise Oversight, http://www.ofheo.gov/hpi.aspx Powell, Benjamin. 2003. "Economic Freedom and Growth: The Case of the Celtic Tiger For the Irish dance show, see . Celtic Tiger (Irish: Tíogar Ceilteach) is a name for the period of rapid economic growth in the Republic of Ireland that began in the 1990s and slowed in 2001, only to pick up pace again in 2003 ." Cato Journal, 22(3): 431-448. Rodrik, Dani. 1999. "Where Did All the Growth Go?" Journal of Economic Growth, 4(4): 385-412. Wang, Lu. 2005. "Economic Freedom and Economic Growth in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ." http://www.andrew.cmu.edu/user/luw/marketpaperr.pdf (1) One may question whether union density should be an indicator of increased or decreased economic freedom. Karabegovic et al., argue that greater union density has a negative impact on economic freedom, and thus it reduces a state's economic freedom index value. Given that we use their index to measure economic freedom, we implicitly assume that higher union density is inimical inimical, n a homeopathic remedy whose actions hinder, but do not counteract those of another. Also called incompatible. to economic freedom. Noel D. Campbell University of Central Arkansas The University of Central Arkansas is a state-run institution located in the city of Conway, the seat of Faulkner County, north of Little Rock. The school is most respected for its programs in Education, Occupational Therapy, and Physical Therapy. Andres Jauregui Columbus State University Columbus State University is a four-year public liberal arts university located in Columbus, Georgia. The university was established and is administered by the Board of Regents of the University System of Georgia, and is fully accredited by the Commission on Colleges of the Kirk C. Heriot her·i·ot n. A tribute or service rendered to a feudal lord on the death of a tenant. [Middle English, from Old English heregeatu : here, army; see koro- Columbus State University
Table 1a: Lowest Economic Freedom Scores (2001) Quintile
State Freedom Index Score
Massachusetts 5.2
North Dakota 5.4
Washington 5.5
Delaware 5.6
Arizona 5.9
Connecticut 5.9
Maryland 6.0
North Carolina 6.1
Vermont 6.1
Virginia 6.2
Table 1b: Highest Economic Freedom Scores (2001) Quintile
State Freedom Index Score
New Mexico 7.4
Florida 7.7
West Virginia 7.7
Georgia 7.8
Illinois 7.8
Ohio 7.8
Michigan 7.9
Minnesota 7.9
Montana 7.9
Rhode Island 7.9
Table 2a: Lowest Housing Price Index (2001) Quintile
State HPI Value
Oklahoma 159.23
Wyoming 165.27
West Virginia 171.2
Louisiana 172.99
North Dakota 176.08
Texas 176.1
Alaska 178.16
Mississippi 192.06
Arkansas 193.66
Kansas 196.02
Table 2b: Highest Housing Price Index (2001) Quintile
State HPI Value
Delaware 297.36
Colorado 301.84
Connecticut 303.99
California 314.19
New Jersey 326.65
Maine 326.85
New Hampshire 330.55
Rhode Island 335.24
New York 396.29
Massachusetts 491.74
Table 3a: Housing Price Scores for the States with the Ten
Highest Economic Freedom Scores for 2001
State Free. Indx. HPI
Vermont 7.5 275.36
Virginia 7.3 260.41
Pennsylvania 7.3 263.14
Rhode Island 7.3 335.24
West Virginia 7.2 171.2
South Carolina 7.2 236.98
Wisconsin 7.2 244.3
Utah 7.2 249.91
Texas 7.1 176.1
Tennessee 7.1 231.98
Table 3b: Housing Price Scores for the States with
the Ten Lowest Economic Freedom Scores for 2001
State Freedom HPI
Michigan 5.7 277.36
Maine 5.7 326.85
Louisiana 5.6 172.99
Minnesota 5.6 262.92
Maryland 5.6 268.59
Kentucky 5.5 230.2
Mississippi 5.4 192.06
Iowa 5.4 203.36
Indiana 5.4 221.12
Kansas 5.1 196.02
Table 4: Descriptive Statistics
Variable Description Mean Std.Dev. Minimum
HPI Housing price 192.36 53.02 85.10
index
Ln HPI Nat. log of 5.22 0.27 4.44
housing price
index
Freedom Economic 6.67 0.54 5.20
freedom index
Ln Free Nat. log of 1.89 0.08 1.65
freedom index
Ln Income Nat .log of 5.12 0.72 4.63
income per
capita
LnMedAge Nat. log of 3.53 0.06 3.27
state median
age
Ln PopDen Nat. log of 4.24 1.36 -0.19
population
density
Ln House Nat. log of 9.64 1.16 6.32
housing
authorizations
Variable Description Maximum Cases
HPI Housing price 491.74 650
index
Ln HPI Nat. log of 6.20 650
housing price
index
Freedom Economic 8.40 650
freedom index
Ln Free Nat. log of 2.13 650
freedom index
Ln Income Nat .log of 10.26 650
income per
capita
LnMedAge Nat. log of 3.67 650
state median
age
Ln PopDen Nat. log of 6.88 650
population
density
Ln House Nat. log of 12.38 650
housing
authorizations
Table 5: Correlation Coefficients
Ln Ln
HPI HPI Freedom Free
HPI 1
Ln HPI 0.98 1
Freedom 0.04 0.03 1
Ln Free 0.04 0.03 1.00 1
LnIncome 0.09 0.09 0.14 0.15
LnMedAge 0.28 0.31 -0.27 0.28
Ln PopDen 0.54 0.54 0.20 0.20
Ln House 0.19 0.24 0.33 0.35
Ln Ln Ln Ln
Income MedAge PopDen House
HPI
Ln HPI
Freedom
Ln Free
LnIncome 1
LnMedAge 0.06 1
Ln PopDen -0.03 0.26 1
Ln House -0.02 0.09 0.48 1
Table 6: Housing Price Index and Freedom Index Estimate
Dep. Var.: Housing Price Index
Model 1 Model 2 Model 3
LnFreedom 194.51 (***)
4.41 (t)
Freedom 29.88 (***) 35.86 (***)
4.38 (t) 5.65 (t)
ChngeFree 3.93
0.99 (t)
Area 1
Area 2
Area 3
Interact
1/2
Interact
1/3
Interact
2/3
LnIncome 159.81 (***) 160.16 (**) 167.11 (*)
2.32 (t) 2.32 (t) 1.99 (t)
LnMedAge 13.65 12.8 14.61
1.26 (t) 1.18 (t) 1.49 (t)
LnPopDen. 28.54 28.17 37.24
0.72 (t) 0.72 (t) 0.86 (t)
LnHousing 17.35 (***) 17.28 (***) 15.23 (**)
3.01 (t) 2.99 (t) 2.14 (t)
Constant -1356 (***) -1184 (***) -1290 (***)
-3.88 (t) -3.33 (t) -3.18 (t)
R-squared 0.87 0.87 0.87
F-statistic 72.56 72.76 74.02
Model 4 Model 5
LnFreedom
Freedom
ChngeFree
Area 1 -42.66 (***) -43.39 (**)
-2.34 (t) -2.43 (t)
Area 2 -9.57
-1.08 (t)
Area 3 -20.88 (*) -24.17 (**)
-1.83 (t) -2.33 (t)
Interact 1.16
1/2 1.48 (t)
Interact 18.56 (**) 22.37 (**)
1/3 2.14 (t) 2.44 (t)
Interact 0.1
2/3 0.08 (t)
LnIncome 216.12 (***) 216.31 (***)
2.92 (t) 2.92 (t)
LnMedAge 7.66 5.28
0.47 (t) 0.31 (t)
LnPopDen. 76.67 75.45
1.5 (t) 1.5 (t)
LnHousing 17.22 (***) 17.137 (***)
2.91 (t) 2.89 (t)
Constant -1247 (***) -1262 (***)
-2.97 (t) -3.03 (t)
R-squared 0.86 0.86
F-statistic 75.64 70.27
Model estimated with cross-sectional and year effects.
(t) t-statistics are in italics.
(*) Significant at 90 percent
(**) Significant at 95 percent
(***) Significant at 99 percent
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