Contagious capitalism?

From the distant reaches of West Virginia, Peter Leeson and Russ Sobel report:

Is capitalism contagious?  Since WWI, global foreign policy has treated economic freedom/repression like a virus that spreads between countries.  Most recently, the domino theory of freedom has played prominently in U.S. foreign policy toward Asia, Latin America, and the Caribbean during the Cold War, and the Middle East during the War on Terror.  This paper investigates the spread of economic freedom between nations.  Our analysis considers two potential channels of this spread: geography and trade.  We estimate two models of spatial dependence using panel data that cover more than 100 countries between 1985 and 2000. We find that capitalism is in fact contagious.  Countries consistently catch about 20 percent of their average geographic neighbors’ and trading partners’ levels and changes in economic freedom.  We also explore American foreign military intervention’s ability to spread economic freedom abroad.  We find that although intervention may increase freedom in U.S.-occupied countries, this freedom is not contagious.  Using our estimates of freedom’s spread when it is contagious, we simulate the impact of successful Iraqi occupation on Middle Eastern freedom.  Even under the most favorable assumptions, we find that U.S. occupation would minimally improve freedom in this region.

I asked Peter what kind of lag specification was reasonable in this context.  Five years, ten years, or two hundred years?  It should make a big difference for the results.  Is Denmark still "free-riding" off England’s relative economic freedom from the 12th and 13th centuries?  Maybe yes.  I don’t like their train system, or for that matter their little gardens, but every time I am in England I kiss the ground of The Mother Lode of Liberty.


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