The Relationship Between Economic Freedoms and Growth: The Case of MIKTA Countries

Abstract

The economic freedom index measures whether the factors that enable the realization of economic activities prevent or help the realization of these activities. In the literature, there is a dominant view that countries that are less exposed to restrictions in economic activities will have higher economic growth tendencies. Despite this, discussions about the direction of the relationship between economic freedoms and economic growth variables continue. In this study, it is aimed to measure whether there is a relationship between economic freedoms and growth in the sample of countries in the period of 1995-2021 and to measure the direction of a possible causality between the variables. In the study, data on economic growth were obtained from UNCTAD (United Nations Conference on Trade and Development), and data on economic freedoms were obtained from the Heritage Foundation website. For the purpose, cross-section dependency test, unit root tests, homogeneity test, panel cointegration test, long-term coefficient estimation test and causality tests were performed respectively. As a result of the estimation of the long-term coefficients with the random coefficients model (RCM), it was found that a 1% increase in economic freedoms increased economic growth by 0.6% in MIKTA (Mexico, Indonesia, South Korea, Türkiye and Australia) countries. According to the results of the Dumitrescu-Hurlin (2012) panel causality test, it was found that there is bidirectional causality between economic freedom and growth variables. Therefore, it is recommended that policy makers include policies that expand and encourage property rights, judiciary, government integrity, financial health, government expenditures, business, labor, trade, investment and financial freedoms.