Free to Grow? A Matching Methods Analysis of Economic Freedom in the United States

Country-wide economic reforms have been shown to causally improve economic outcomes. A growing literature is examining the role of subnational economic freedom on outcomes. I fill the gap the literature by using matching methods to attempt to estimate the causal impact of economic reforms (measured as sustained and large five-year increases in the Economic Freedom of North America index) on subsequent net income per capita growth. The results suggest that state-level reforms provide a large, but short term boost in economic growth. To my knowledge, this is the first paper to examine the timespan that these reforms last within the United States. This also holds, and is statistically and impactfully more meaningful, when examining reforms in labor market regulation.