Economic freedom is the key to peace as well as to prosperity

By Brian Micklethwait | 8 September 2005

Economic freedom is the key to prosperity. Many persist in regretting this equation, but few now doubt its truth. But classical liberals also argue that economic freedom causes peace, and now comes new evidence that the causal link between economic freedom and peace is real, and significant.

Economic freedom is almost 50 times more effective than democracy in diminishing violent conflict between nations, according to the Economic Freedom of the World: 2005 Annual Report, released today by The Fraser Institute.

In new research published in this year's report, Erik Gartzke, a political scientist from Columbia University, compares the impact of economic freedom on peace to that of democracy on peace.

Says co-author James Gwartney:

Researchers have long known democracies go to war about as often as other nations but tend not to go to war with each other. However, stable democracies typically have strong levels of economic freedom, leading to the question of whether it is democracy or economic freedom that affects the probability of violent conflict.

So, which is it, democracy or economic freedom?

When measures of both economic freedom and democracy are included in a statistical study, economic freedom is about 50 times more effective than democracy in diminishing violent conflict. The impact of economic freedom on whether states fight or have a military dispute is highly significant, while democracy is not a statistically significant predictor of conflict.

Nations with a low score for economic freedom (below 2 out of 10) are 14 times more prone to conflict than states with a high score (over 8). The overall pattern of results does not shift when additional variables, such as membership in the European Union, nuclear capability, and regional factors, are added.

The entire Economic Freedom of the World: 2005 Annual Report can be read online, here.