Proxies for Economic Freedom: A Critique of the Hanson Critique

Economic freedom indicators have become quite popular recently as a useful tool to quantify the relationship between a countryʹs institutions and its prosperity. In a recent article, Hanson (2003) criticizes these types of studies for: (i) failing to adequately distinguish between different proxies for economic freedom, (ii) not considering the potential for endogeneity, and (iii) accepting significance of economic freedomʹs ability to promote prosperity even though regression analysis generates "nonsensical" results. Closer inspection reveals that most of his arguments are questionable, do not apply to much of the literature, or are not original, and that he is guilty of misinterpreting his own econometric evidence relating freedom to the level of GDP.