The Ecological Footprint of Economic Freedom

Using data on up to 127 countries, this paper finds robust evidence that economic freedom has enlarged the ecological footprint per capita between the 1970s and the early 2020 s. The magnitude of the effect is substantial, both in the full sample and in the subsample of developed countries. The results also suggest that the impact of economic freedom is likely to have intensified over time. Moreover, the paper finds that the adverse effect of economic freedom is probably driven by a small government sector, the rule of law and secure property rights as well as by market-friendly regulations. Finally, it finds that the indirect effect of economic freedom on the ecological footprint via GDP per capita is small. The paper adds to the previous literature in several respects. It is one of the first to account for endogeneity of economic freedom. Its sample covers many more countries and years than previous studies. Additionally, in contrast to all previous studies it performs a battery of robustness checks and controls for almost all major determinants of the ecological footprint as well as for unobserved country and year effects.