A new study by the Fraser Institute in Canada finds that economic freedom is an important cause of air quality improvement.
The study compares average airborne concentrations of particulate matter and economic freedom in 105 countries around the world. The authors, Joel Wood and Ian Herzog, find that in 2010, the 20 countries that were most economically free had average concentrations of particulate matter that were nearly 40% lower than the 20 least-free countries.
Of course, correlation does not prove causation, and other variables often associated with economic liberty, namely wealth and democracy, also foster air quality improvement. Nonetheless, the authors find a “robust” relationship between economic freedom and air quality after controlling for other factors:
After controlling for the effects of income, political freedom, and other confounding variables, we find that a permanent one-point increase in the Economic Freedom of the World index results in a 7.15% decrease in concentrations of fine particulate matter in the long-run, holding all else equal. This effect is robust to many different model specifications and is statistically significant. This effect is in addition to a general 36% decrease over time due to unidentified factors.
The study is based on urban concentrations of airborne particulate matter smaller than 10 microns in diameter (PM10) from the World Bank’s World Development Indicators and on the Fraser Institute’s Economic Freedom of the World (EFW), which in turn is largely based on data from the International Monetary Fund, World Bank, and World Economic Forum. The EFW index “reflects the size of government; the quality of the legal system and strength of property rights; soundness of money; freedom to trade; and burden of regulation.”
So why does economic freedom promote air quality improvement?
- Property rights defined and secured through a strong justice system enable people to protect themselves and their property from pollution.
- In contrast, government regulations that preempt private, court-enforced “negotiations between those benefiting from and those being hurt by a polluting activity” prevent “an efficient distribution of the right to the environmental resource” and “cause inefficient levels of pollution.”
- Freedom to trade “is key to ensuring that new, cleaner technologies can be adopted across borders.”
- “Bureaucratic inefficiency, the influence of special-interest groups, and the prevalence of state-owned enterprises can all hinder the ability of a government to improve the environment effectively.”
- State-run firms shielded from market discipline are wasteful resource consumers.
The last point is more important than generally realized. In this connection, I’m pleased to post Hoover Institution scholar Mikhail S. Bernstam’s splendid out-of-print book, The Wealth of Nations and the Environment. Published in 1990, the book is something a post mortem on the Soviet Union. The Soviet empire collapsed largely because it went bankrupt. Economic decline however did not mean less pollution but more. Our worst ecological nightmares were daily realities of people living in the USSR and other eastern bloc countries. Why is that? [click to continue…]


