Economic Freedom and People’s Views of Competition

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: This paper examines whether the extent to which institutions and policies are market-oriented influences people’s thoughts on the competitive process. Through the use of country-level panel data, as well as a cross-sectional sensitivity analysis linking individual-level and country-level data, this paper examines the effects of general, and five different areas of, economic freedom on people’s views of competition. A central result, found in both analyses, is that a small government is associated with greater support for competition, although the effect is small. Furthermore, greater regulation of the economy is associated with an increase in one measure of country-level competition endorsement. There is also a negative and quite substantial relationship between the quality of the legal system and the percentage of people regarding competition as completely undesirable. Sound money further seems to be negatively associated with the share of people expressing a very strong competition endorsement, although the effect is small. Finally, at the individual-level, free trade seems to be negatively associated with competition endorsement among households in the lowest income decile in particular. The direction of causality is argued to go from economic freedom to views of competition in at least some of these cases. Since competition is widely considered a pivotal prerequisite for any modern market economy, this study can be seen as a contribution to the broader understanding of people’s support for, or opposition against, the capitalist economy in general.

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