Official Visits and Economic Freedom

Abstract

This study examines the effect of U.S. Presidents and Secretaries of State visits to a country on institutional quality, particularly on economic freedom. Hence, the study develops a model that predicts the conditions under which official visits can enhance the quality of institutions. We compile variables on official visits from 1960 to 2019 from the archives of the U.S. State Department to test the predictions of our model. In addition, we use the endogenous treatment model estimation to deal with potential endogeneity. The estimation results show that the official visits have a statistically significant negative effect on economic freedom, particularly in non-democratic countries with less political freedom. The estimation results are robust with different types of visits and samples. The study presents multiple explanations for these results, including the possibility of the following: First, some American administrations adopt a pragmatic approach aimed at achieving strategic objectives while overlooking practices that do not enhance institutional quality. Second, these official visits may improve other aspects of institutional quality that are more observable to the international community than economic freedoms. Third, American policymakers care more about achieving short-term objectives from their visits that can be presented as accomplishments to their electorate rather than institutional reforms that will only yield benefits to the United States in the long run. Finally, economic freedoms are associated with political freedoms per the Hayek-Friedman hypothesis.