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Authors:

• Roger R. BETANCOURT
  University of Maryland

• Ariel BENYISHAY
  University of Maryland

Men of action are often skeptical if not contemptuous of the connection between civil liberties and economic activity. Until now, empirical research on economic growth has found mixed evidence of their influence. Arguments about which institutions matter for growth, however, continue to suggest mechanisms that highlight civil liberties’ importance. In particular we will emphasize that they can work as indicators of the prevalence of the rule of law or more narrowly of the existence of property rights institutions. The prevalence of the rule of law, we shall argue, is especially important to sustain high levels of operations in investment markets that are widely recognized as critical for growth. Disaggregation of the Freedom House Civil Liberties index allows a fresh empirical look at the effect of human rights on growth as well as an exploration of their relevance as indicators of the mechanism noted above. Our results show that one of the four subcategories of the index outperforms all available indicators of property rights institutions in explaining long-term economic growth and the level of operations in investment goods markets. This subcategory, Personal Autonomy and Individual Rights, captures second generation human rights and the interactions of individuals in society through norms and other non-governmental collective mechanisms.