Scholarly Comments on Academic Economics

On Whether the Size of Government Belongs in Economic Freedom Indices

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Abstract

Jan Ott (2018) uses the concept of convergent validity to recommend that the size of government be removed from measures of economic freedom. While he assesses both the measure from the Heritage Foundation and the Economic Freedom of the World (EFW) measure, I focus on EFW, which is more significant in the academic sphere and with which I myself am associated. Ott’s article is in a line of research which suggests the size of government should be treated differently than other economic freedom data, because it behaves differently across countries. I criticize Ott (2018) while speaking also to this other literature. First, Ott’s primary finding is contingent on the sample used and contingent on an older version of the economic freedom data. Second, and more importantly, EFW is a formative construct, which means that its constituent dimensions are what define it. Third, were we to apply Ott’s methodology to other measures of institutions, we would reach conclusions that most observers would find untenable. Disaggregating size of government from the other dimensions of economic freedom may be useful for narrow questions, but removing the size of government simply inhibits our ability to properly test hypotheses concerning economic freedom.