ECONOMIC FREEDOM AND THE ECONOMIC CONSEQUENCES OF THE 1918 PANDEMIC

The 1918 flu pandemic constituted an exogenous shock on economic activity. In this paper, we condition the economic importance of these shocks on the level of economic freedom measured by the Historical Index of Economic Liberty project to test whether freer economies fared better. Our argument is that higher levels of economic freedom meant a greater ability to adjust to shocks by reducing frictions in the reallocation of resources and the reorganization of economic activity. We find that higher levels of economic freedom mitigated the pandemic's effect. We link this finding with the literature on economic freedom and crises.(JELI15, N10, N30)