DETERMINANTS OF GROSS DOMESTIC PRODUCT: A NEW PERSPECTIVE

Abstract

A parsimonious measure of the relationship between wealth and the factors capitalism(C), democracy(D) and rule of law(R) is summarized in a CDR index. While the economic freedom index is a good economic indicator it is not designed to predict gross domestic product. The CDR index is a good predictor. Government spending and country-size are shown to have no effect on wealth per capita. The CDR effect on wealth is approximately thirteen times that of natural resources. Since government spending and the impact of natural resources on wealth are negligible, government policy must focus on building institutions for raising the CDR index.