Economic Freedom and the Economic Consequences of the 1918 Pandemic

The Spanish flu pandemic of 1918 constituted a strong exogenous shock on economic activity that compounded that of the First World War. In this paper, we condition the economic importance of these shocks on the level of economic freedom measured by the HIEL project (Prados de la Escosura 2016) to test whether freer economies fared better. Our argument is that higher levels of economic freedom meant a greater ability to adjust to the shocks by reducing frictions in the reallocation of resources and the reorganization of economic activity. We find that countries with higher levels of economic freedom suffered less from the pandemic. We link this finding with the literature on economic freedom and crises