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Economic freedom and materialism: an empirical analysis

Abstract

While economists have found a positive relationship between norms like generalized trust and economic growth, several scholars outside of economics have argued that there is a tradeoff between economic growth and morality. In particular, they argue that as markets develop, market values, e.g. a focus on money and material possessions, also increase. In this article we empirically test this claim using data from the Economic Freedom of the World project, the World Bank, and the World Values Surveys. Our findings suggest that countries with more economic freedom, i.e. those countries that embrace markets to a greater extent, are less materialistic. We also find that countries with a higher GDP per capita are correlated with less materialism.

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Notes

  1. 1.

    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.

  2. 2.

    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.

  3. 3.

    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.

  4. 4.

    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.

  5. 5.

    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.

  6. 6.

    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.

  7. 7.

    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.

  8. 8.

    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.

  9. 9.

    Y002 was converted into POST.

  10. 10.

    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.

  11. 11.

    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?

  12. 12.

    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).

  13. 13.

    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.

  14. 14.

    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.

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Correspondence to Megan V. Teague.

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A Appendix

A Appendix

A.1 Descriptive statistics

See Tables 12, 13 and 14.

Table 12 Descriptive statistics for dependent variables
Table 13 Descriptive statistics for continuous and dummy control variables
Table 14 Descriptive statistics for categorical control variables

A.2 Area 1 and Area 3: ordered logistic regression

Area 1: Size of Government and Area 3: Sound Monetary Policy were not included in the analysis above because the results when using these measures as key explanatory variables were either not compelling enough in significance or because economic theory does not enable us to predict a precise directional change (Table 15).

Table 15 Ordered logistic regression analysis of world values survey question Y001 and economic freedom Area 1

One might expect that higher scores in Area 3, sound monetary policy, would be important to someone with materialist sentiments because sound monetary policy would protect the value of their currency and keep their purchasing power stable and predictable. If this aspect of economic freedom was associated with greater materialism, we would observe a negative coefficient for the two binary dependent variables and higher odds of being in the lower two categories of the ordered logit estimates.

In the two logit models with the binary dependent variable, Table 16, Area 3 has a positive coefficient which is consistent with the relationship observed for the summary EFW index score and Areas 2, 4, 5 that we include in the paper. These results are also significant at the 1% level in all specifications. When looking at the ordered logit results, the coefficients for Area 3 have the correct signs, but it is not significant in the first specification (thought the other two explanatory variables are). Area 3 is, however, significant at the 1% level for the second specification. These results provide some evidence that sound monetary policy is correlated with less materialistic sentiments, though this relationship is less robust than the results we include and discuss in detail in the paper (losing significance in one out of six regression specifications).

Table 16 Ordered logistic regression analysis of world values survey question Y001 and economic freedom Area 3

For Area 1, size of government, theory suggests that the coefficient signs could be either positive or negative. It could be the case, for instance, that people who have materialist sentiments would demand smaller government size in order to have lower taxes so that they have a higher amount of disposable income. If this is true, this would result in a negative correlation between Area 1 and our measures of materialism. On the other hand, it might be the case that materialistic people are more likely to utilize the government’s ability to redistribute resources to themselves—that is, they might be more likely to rent seek and demand greater government intervention. If this is true, we would expect to see a positive relationship between our measures of materialistic sentiments and Area 1 of the EFW index. Thus, the theory underlying our predictions about this relationship does not provide much clarity. Further, the empirical results we obtain are mixed. Referring to Table 16, for the two logit models exploring the relationship between Area 1 and our binary measures of materialistic sentiments, one estimates positive coefficients that are significant at the 1% level, suggesting smaller government size is associated with less materialistic sentiments, while the other estimates negative coefficients suggesting the opposite. When looking at the results of the ordered logit regression, we see that higher scores on Area 1 increases the likelihood of having more materialistic attitudes. This result is again significant at the 1% level, but the signs are the opposite of what the results are the opposite of what we find for the summary EFW score and all other areas of the EFW index. Our empirical results do not offer any clear explanation of the relationship between materialism and the size of government, though it estimates an inverse relationship between Area 1 and our measure of materialism in two out of three cases. Further, empirical studies using the disaggregated EFW index frequently show that Area 1 exhibits a different relationship with the dependent variable than the other four areas, raising the question of whether it is simply the size of government or the quality of government that matters more for economic freedom. Ott (2018) has even suggested that the EFW index could be improved by removing Area 1 altogether.

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Teague, M.V., Storr, V.H. & Fike, R. Economic freedom and materialism: an empirical analysis. Const Polit Econ 31, 1–44 (2020). https://doi.org/10.1007/s10602-019-09296-0

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Keywords

  • Markets
  • Materialism
  • Values
  • Economic freedom

JEL Classification

  • Z1
  • Z10
  • Z19
  • P5
  • P52