Cuba and Capitalist Contagion
By Bryan Caplan
Thinking about Cuba’s prospects reminded me of Sobel and Leeson’s neat chapter on “The Spread of Global Economic Freedom” in the 2007 Economic Freedom of the World study. In this piece, Sobel and Leeson use spatial econometrics to see whether economic policy in one country “spills over” onto geographical neighbors and/or trading partners. Their findings:
[E]conomic freedom spreads at about the same rate through both geography and trade, in both levels and changes. Countries “catch” about 20% of their average geographic neighbors’ and trading partners’ levels and changes in economic freedom. This result is remarkably robust to alternative specifications and estimation techniques.
But before you take up the Free Man’s burden, keep in mind that:
Although these results provide strong evidence that freedom spreads, they also suggest freedom does not spread as strongly as the domino theory behind American and Soviet foreign relations during the Cold War suggested. The idea that reforms within a few key nations would substantially alter the state of economic freedom in the rest of the region does not appear to be correct.
If Sobel and Leeson’s story is correct, opening up trade with Cuba will make them a lot more capitalist, but make us a tiny bit more socialist. At least in this case, though, I suspect that the feedback will, if anything, go in the opposite direction. Easy travel to Cuba will once again put the horror of socialism on the front page of every U.S. newspaper.