I usually employ a mix of the two.

Often I will have a fair amount of detail on the current area and culture, but will wait to see where my players want to go to build out. As such, I do create an overall story with at least a rough outline of the outside world and its history.

In my freeform games, however, I almost entirely go bottom up and let my players world build as they create and play their characters. Even in these games, though, I do give a goal or direction upon which the narrative can be built.