Economic freedom–growth nexus in European Union countries

ABSTRACT

This study examines the economic freedom and economic growth nexus in a panel of 28 European Union countries. We investigate the relationship between growth and different components of economic freedom, measured in five major areas of the Economic Freedom of the World index. The aim of the article is to assess which aspects of economic freedom – and to what extent – contribute to economic growth in the EU. Our empirical analyses suggest that the results are sensitive to the method of estimation. Using the Generalized Method of Moments estimator which allows addressing endogeneity, we found a positive relationship between economic growth and four of the five aspects of economic freedom: security of property rights, quality of monetary policy, freedom to trade and regulatory policies.

KEYWORDS:

• Economic growth
• economic freedom
• European Union
• GMM
• panel data models

JEL CLASSIFICATION:

• O11
• O47
• O52

Acknowledgements

The author thanks Zbigniew Kuchta and Iwona Świeczewska from University of Łódź for helpful comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author.

ORCID

Andrzej Kacprzyk http://orcid.org/0000-0003-2660-3849

Notes

¹ An alternative strategy is to use the difference-GMM estimator; however, in the presence of persistent data such as GDP in our study, this estimator may produce biased estimates.