Economic freedom and materialism: an empirical analysis

Gwartney et al. (1999), for instance, show that economic freedom was a significant determinant of economic growth after controlling for confounding factors such as human capital, physical capital, and demographic characteristics. Doucouliagos and Ulubasoglu (2006) confirm the strength of this positive relationship by controlling for specification bias present throughout previous literature.

See Hall and Lawson (2014) for a detailed survey of the literature exploring the relationship between economic freedom and numerous development outcomes. The authors surveyed 402 studies, out of which 198 used the EFW index as an independent variable in an empirical analysis. More than two-thirds of these empirical studies found a significant relationship between greater economic freedom and a desirable development outcome, while only two found a significant relationship between greater economic freedom and an undesirable outcome.

The link between morality and materialism is a complex one that we do not attempt to solve in this article. Instead, we call upon common knowledge of moral systems in general and their commentary on such vices like greed or avarice which emphasize desires to acquire “things” above other things we might consider important. It is these moral characteristics we seek to proxy by using measures of materialism, which we likewise define as ‘desires to acquire material possessions for oneself above most other things,’ in our exploration of the connection between morals and markets.

This is very similar to Maslow (1943), who in the Theory of Human Motivation argued that there are several levels of human development and once one level is satiated, needs from other higher categories become desirable. To Inglehart (1977), materialism is a result of some lesser need—economic security, he hypothesizes—not met.

This paper has come under question recently, with several papers and books denoting faults of Falk and Szech (2013)’s experiment (Ariely et al. 2015; Breyer and Weimann 2014; Bartling et al. 2014). Bartling et al. (2014), for instance, attempt to run a similar experiment between China and Switzerland and finds that outcomes vary across countries and contexts. Another study by Ariely et al. (2015) contests the argument that markets, alone, are demoralizing. By testing the propensity to cheat between individuals with cultural closeness to either western or eastern parts of Germany, they suggest that closeness to socialism may have an even stronger demoralizing effect than markets. Others point to the validity of the experiment procedures or interpretation of their findings (Bowles 2016; Breyer and Weimann 2014) . Bowles (2016) suggests comparing the results from their paper to a test which allows subjects to buy back the mouse’s life after being stolen. This might elucidate whether it was the market or simply the experiment that induced demoralizing outcomes. Another paper by Breyer and Weimann (2014) explains that Falk and Szeck misinterpreted their results: most markets do not involve bargaining and consumers, after all, are often price takers and so they should not conclude that “markets” are degrading.

When choices are what really matter, then simply having more or less available stuff does not carry the same weight. Instead, the conditions which influence the types and amount of choices individuals make may determine whether or not an individual is materialistic.

In the literature, Area 1: Size of Government and Area 3: Soundness of Money do not always behave in the same way as the other areas (Ott 2018; Bergh and Henrekson 2011; Rode and Coll 2012). Results and a short discussion for areas 1 and 3 are located in the appendix of this paper.

We include only one measure of institutional quality for the purpose of brevity. Adding dummy variables to account for whether a country is a colony of if a country is under a communist regime does not alter our findings. Results including these controls are available upon request.

Y002 was converted into POST.

When Areas 1 and 3 are used, the marginal effects are less pronounced, but the signs and significance levels of the results are the same in nearly all specifications. See appendix for results and a discussion on this.

Gehring (2013) explores a similar argument in addressing a reverse causality concern in his own work: is the positive relationship between subjective well being and economic freedom caused by happy people moving to countries with higher levels of economic freedom? Or in our case, do materialistic individuals move to places with lower levels of economic freedom and vice versa?

See, again, Ahuvia (2002); Sirgy et al. (1998), Sirgy (1998), Ryan and Dziurawiec (2001), Belk (1984), Dawson and Bamossy (1991), Keng et al. (2000), La Barbera and Gürhan (1997).

Since the dependent variable is obtained at the individual level, but economic freedom is measured at the country level, one may argue that this gets at some of the causality concerns. The economic institutions are likely to affect the attitudes of individuals, however it is highly unlikely that the attitudes of one individual will exert a notable difference on the macro-level institutional environment. Further, if the causality ran in the opposite direction, one would suspect people who highly prize material possessions would desire much greater protection of their property and thus demand greater levels of economic freedom. The empirical relationship we find in this study runs in the opposite direction, with economic freedom and materialism having a negative relationship and not a positive one.

Implied from the two preceding reasons, economic freedom, through its effect on economic growth, may result in a cultural shift away from a more collectivist mindset to a more individualist one (Ahuvia and Wong 2002). It is this cultural shift that might results in the presence (or absence) of materialism. Wealth diminishes the dependence upon group and kin-based organizations as a means of providing goods (necessities) and services (protection from predation). So, as countries grow (economic freedom improves) culture shifts from a commune-based system to one which emphasizes individualism and innovation. As individualist values emphasizes the desire to maximize happiness and materialist values consistently makes us unhappy, materialism is costly for individualists relative to communal-types.