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AspiringRationalist comments on What false beliefs have you held and why were you wrong? - Less Wrong Discussion
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To test this hypothesis, I did a linear regression of overall score, each of the ten subscores and 2013 real GDP growth against the log of 2013 GDP per capita (at parity). I then took the correlation between the residual of 2013 real GDP growth and the residual for each of the scores. Here are the results: overall score -0.04 property rights -0.15 freedom from corruption -0.11 fiscal freedom 0.25 government spending 0.18 business freedom -0.03 labor freedom 0.05 monetary freedom -0.12 trade freedom 0.01 investment freedom -0.18 financial freedom -0.09
These results were approximately opposite of what I expected (I expected minimal correlation for fiscal freedom and government spending and generally positive correlations for everything else). While I'm only somewhat surprised by the government spending and fiscal freedom results, I find the others very confusing. Does anyone have any idea what might be going on?
The analysis I'd do would be simpler. Compute the correlation of log GDP per capita with the freedom index (or its subscales); if I'm right it should be substantially positive. Then correlate log GDP per capita with GDP growth; the result should be substantially negative. Taking correlations of residuals addresses the different question of whether unusually high growth for a country's income level correlates with unusually high freedom indices for a country's income level.
I did the simpler analysis first and all the correlations between log GDP per capita and all the economic freedom index subscores were pretty negative (as was the correlation between log GDP per capita and GDP growth). Log GDP per capita was positively correlated with economic freedom subscores.
Edit: clarity
Thanks. A negative correlation between log GDP per capita and the freedom index surprises me; that falsifies my "poor country" confounder speculation.
The comment above yours was not very clear. I have edited it for clarity. There is in fact a positive correlation between the economic freedom index and log GDP per capita.
I'm more confused now. The parent comment says the EF index correlates positively with log GDP per capita, while the edited comment says the EF index subscores correlate both negatively and positively with log GDP per capita. I don't understand how that can all be true simultaneously...