Research Article
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Year 2021, Volume: 18 Issue: 1, 9 - 20, 30.06.2021

Abstract

References

  • Abrigo, M. R. M., and Love, I. (2016). Estimation of Panel Vector Autoregression in Stata. The Stata Journal: Promoting Communications on Statistics and Stata, 16(3): 778–804.
  • Ahmed, S. and Ahmad, H. K. (2020). Impact of Economic and Political Freedom on Economic Growth in Asian Economies, European Online Journal of Natural and Social Sciences, 9(1): 219-231.
  • Alabede, J.O. (2018). Economic freedom and tax revenue performance in sub-Saharan Africa, Journal of Financial Reporting and Accounting, 16(4): 610-638.
  • Azman-Saini, W. N. W., Baharumshah, A. Z., and Law, S. H. (2010). Foreign direct investment, economic freedom and economic growth: International evidence, Economic Modelling, Vol. 27 No. 5, pp. 1079–1089.
  • Barro, R. J. (1994). Democracy and Growth, (No.w4909) National Bureau of Economic Research
  • Bengoa, M., and Sanchez-Robles, B. (2003). Foreign direct investment, economic freedom and growth: new evidence from Latin America, European Journal of Political Economy, 19(3): 529–545.
  • Berggren, N. (1999). Economic freedom and equality: Friends or foes?, Public Choice, 100: 203–223.
  • Bumann, S., Hermes, N., and Lensink, R. (2013). Financial liberalization and economic growth: A meta-analysis, Journal of International Money and Finance, 33: 255–281.
  • Buscariolli, B. and Carneiro, J. (2019), How economic freedom affects transaction costs, Tulder, R.V., Verbeke, A. and Jankowska, B. (Ed.) International Business in a VUCA World: The Changing Role of States and Firms (Progress in International Business Research, Vol. 14), Emerald Publishing Limited, pp. 157-169.
  • Carlsson, F., and S., Lundström. (2002). Economic freedom and growth: decomposing the effects. Public Choice, 112 (3-4): 335–344.
  • De Vanssay, X., and Spindler, Z. A. (1994). Freedom and growth: Do constitutions matter?, Public Choice, 78(3-4): 359–372.
  • DeBode, J.D., Haggard, D.L. and Haggard, K.S. (2019). Economic freedom and Hofstede’s cultural dimensions, International Journal of Organization Theory & Behavior, 23 (1): 65-84.
  • Dubovicka, L., and Varcholova, T. (2020). Instituonal factors of economic growth, Fundamental and Applied Researches in Practice of Leading Scientific Schools, 37(1): 42-47.
  • Friedman, M. (1962). Capitalism and Freedom, Chicago: University of Chicago Press.
  • Gehring, K. (2013). Who Benefits from Economic Freedom? Unraveling the Effect of Economic Freedom on Subjective Well-Being, World Development, 50: 74–90.
  • Ghazalian, P. L., and Amponsem, F. (2019). The effects of economic freedom on FDI inflows: an empirical analysis, Applied Economics 51 (11): 1111-1132.
  • Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods, Econometrica, 37 (3): 424-438.
  • Habib, M., and Zurawicki, L. (2002). Corruption and foreign direct investment. Journal of International Business Studies, 33 (2): 291-307.
  • Hanke, S. H. and Walters, S. J. (1997). Economic freedom, prosperity, and equality: A survey. Cato Journal, 17 (2):117-146.
  • Harkati, R., Alhabshi, S.M. and Kassim, S. (2019). Influence of economic freedom and its subcomponents on risk-taking behavior: Evidence from dual banking system of Malaysia, Review of Behavioral Finance, 12 (4): 335-356.
  • Heckelman, J. C. (2000). Economic freedom and economic growth: a short-run causal ınvestigation, Journal of Applied Economics, 3 (1):71–91.
  • Heritage Foundation (2020). Abaut to Index. https://www.heritage.org/index/about Accessed: 18 November 2020.
  • Holtz-Eakin, D., Newey, W., and Rosen, H. S. (1988). Estimating vector autoregressions with panel data, Econometrica, 56 (6): 1371.
  • Im, K. S., Pesaran, M. H., and Shin, Y. (2003). Testing for unit roots in heterogeneous panels, Journal of Econometrics, 115 (1):53–74.
  • Jackson, J. J. (2016). Economic freedom and social capital: pooled mean group evidence, Applied Economics Letters, 24 (6): 370–373.
  • Khan, M. A., Islam, M. A., and Akbar, U. (2020). Do economic freedom matters for finance in developing economies: a panel threshold analysis, Applied Economics Letters, DOI: 10.1080/13504851.2020.1782335
  • Korle, K., Amoah, A., Hughes, G., Pomeyie, P. and Ahiabor, G. (2020). Investigating the role of disaggregated economic freedom measures and FDI on human development in Africa, Journal of Economic and Administrative Sciences, 36 (4): 303-321.
  • Lawson, R. A., Murphy, R., and Powell, B. (2020). The determinants of economic freedom: a survey, Contemporary Economic Policy, 38 (4): 622-642.
  • Liao, M.-Y. (2018). International evidence on economic freedom, governance, and firm performance, International Corporate Governance and Regulation (Advances in Financial Economics, Vol. 20), Emerald Publishing Limited, pp. 85-103.
  • Love, I., and Zicchino, L. (2006). Financial development and dynamic investment behavior: Evidence from panel VAR, The Quarterly Review of Economics and Finance, 46(2): 190–210.
  • Memoli, V. and Quaranta, M. (2019). Economic evaluations, economic freedom, and democratic satisfaction in Africa, The Journal of Development Studies, 55 (9): 1928-1946.
  • Murphy, R.H. (2019). Economic freedom variables endogenous to business cycles, Journal of Financial Economic Policy, 12 (1):65-75.
  • Peev, E., and Mueller, D. C. (2012). Democracy, economic freedom and growth in transition economies, Kyklos, 65 (3):371–407.
  • Pérez-Moreno, S., and Angulo-Guerrero, M. J. (2016). Does economic freedom increase income inequality? Evidence from the EU countries, Journal of Economic Policy Reform, 19(4):327–347.
  • Piątek, D., Szarzec, K., and Pilc, M. (2013). Economic freedom, democracy and economic growth: a causal investigation in transition countries, Post-Communist Economies, 25(3): 267–288.
  • Quazi, R. (2007). “Economic freedom and foreign direct investment in East Asia”, Journal of the Asia Pacific Economy, 12(3): 329–344.
  • Sambharya, R.B. and Rasheed, A.A. (2015). Does economic freedom in host countries lead to increased foreign direct investment?, Competitiveness Review, 25(1): 2-24.
  • Santiago, R., Fuinhas, J. A., and Marques, A. C. (2018). The impact of globalization and economic freedom on economic growth: the case of the Latin America and Caribbean countries, Economic Change and Restructuring. doi:10.1007/s10644-018-9239-4.
  • Sarpong-Kumankoma, E., Abor, J.Y., Aboagye, A.Q.Q. and Amidu, M. (2020). Economic freedom, competition and bank stability in Sub-Saharan Africa, International Journal of Productivity and Performance Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJPPM-06-2019-0310.
  • Scully, G. W. (2002). Economic freedom, government policy and the trade-off between equity and economic growth, Public Choice 113: 77–96.
  • Seyoum, B. and Ramirez, J. (2019). Economic freedom and trade flows: A moderated mediation model of inward foreign direct investment (FDI) and government stability, Journal of Economic Studies, 46(4): 985-1006.
  • Shaar, K., and Ariff, M. (2016). Re-examination of price level differentials using economic freedom index, The Journal of International Trade & Economic Development, 25(6): 880–896.
  • Shumway, J. M., and Davis, J. A. (2015). Economic freedom, migration, and ıncome change in the united states: 1995 to 2010, The Professional Geographer, 68(3): 390–398.
  • Sims, C. A. (1980). Macroeconomics and Reality, Econometrica, 48(1): 1.
  • Singh, D., and Gal, Z. (2020). Economic Freedom And İts Impact On Foreign Direct Investment: Global Overview, Review of Economic Perspectives – Národohospodářský obzor, 20(1):73–90.
  • Sturm, JE., and De Haan, J. (2001). How Robust Is The Relationship Between Economic Freedom And Economic Growth? Applied Economics, 33(7): 839-844.

Does Economic Freedom Improve Macroeconomic Performance? A New Research with the PVAR Method in the G-7 Group

Year 2021, Volume: 18 Issue: 1, 9 - 20, 30.06.2021

Abstract

The relationship between economic freedom (EF) and growth (GDP) has been the subject of a lot of research recently. The aim of this study is to examine the relationship between EF and GDP in G-7 countries. In the study, 1996-2019 observation period and panel vector autoregression (PVAR) analysis were used as econometric method. In the study, EF variable is included in the equation as subcomponents. A positive relationship was determined between GDP and public expenditures and government integrity variables, which are subcomponents of EF. However, there is a negative relationship between the other three variables and GDP. According to causality analyses, there is an absolute relationship between GDP and EF. In this study, the relationship between EF and macro performance was analyzed again using the most up-to-date and reliable data. Contrary to the general literature, the results show a negative relationship between EF and growth. In addition, many studies in the literature as an econometric method only make causality or coefficient estimation. However, in this study, the PVAR analysis method, in which both causality and regression estimates are presented together, was used. These three cases show the main original contributions of the study to the literature.

References

  • Abrigo, M. R. M., and Love, I. (2016). Estimation of Panel Vector Autoregression in Stata. The Stata Journal: Promoting Communications on Statistics and Stata, 16(3): 778–804.
  • Ahmed, S. and Ahmad, H. K. (2020). Impact of Economic and Political Freedom on Economic Growth in Asian Economies, European Online Journal of Natural and Social Sciences, 9(1): 219-231.
  • Alabede, J.O. (2018). Economic freedom and tax revenue performance in sub-Saharan Africa, Journal of Financial Reporting and Accounting, 16(4): 610-638.
  • Azman-Saini, W. N. W., Baharumshah, A. Z., and Law, S. H. (2010). Foreign direct investment, economic freedom and economic growth: International evidence, Economic Modelling, Vol. 27 No. 5, pp. 1079–1089.
  • Barro, R. J. (1994). Democracy and Growth, (No.w4909) National Bureau of Economic Research
  • Bengoa, M., and Sanchez-Robles, B. (2003). Foreign direct investment, economic freedom and growth: new evidence from Latin America, European Journal of Political Economy, 19(3): 529–545.
  • Berggren, N. (1999). Economic freedom and equality: Friends or foes?, Public Choice, 100: 203–223.
  • Bumann, S., Hermes, N., and Lensink, R. (2013). Financial liberalization and economic growth: A meta-analysis, Journal of International Money and Finance, 33: 255–281.
  • Buscariolli, B. and Carneiro, J. (2019), How economic freedom affects transaction costs, Tulder, R.V., Verbeke, A. and Jankowska, B. (Ed.) International Business in a VUCA World: The Changing Role of States and Firms (Progress in International Business Research, Vol. 14), Emerald Publishing Limited, pp. 157-169.
  • Carlsson, F., and S., Lundström. (2002). Economic freedom and growth: decomposing the effects. Public Choice, 112 (3-4): 335–344.
  • De Vanssay, X., and Spindler, Z. A. (1994). Freedom and growth: Do constitutions matter?, Public Choice, 78(3-4): 359–372.
  • DeBode, J.D., Haggard, D.L. and Haggard, K.S. (2019). Economic freedom and Hofstede’s cultural dimensions, International Journal of Organization Theory & Behavior, 23 (1): 65-84.
  • Dubovicka, L., and Varcholova, T. (2020). Instituonal factors of economic growth, Fundamental and Applied Researches in Practice of Leading Scientific Schools, 37(1): 42-47.
  • Friedman, M. (1962). Capitalism and Freedom, Chicago: University of Chicago Press.
  • Gehring, K. (2013). Who Benefits from Economic Freedom? Unraveling the Effect of Economic Freedom on Subjective Well-Being, World Development, 50: 74–90.
  • Ghazalian, P. L., and Amponsem, F. (2019). The effects of economic freedom on FDI inflows: an empirical analysis, Applied Economics 51 (11): 1111-1132.
  • Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods, Econometrica, 37 (3): 424-438.
  • Habib, M., and Zurawicki, L. (2002). Corruption and foreign direct investment. Journal of International Business Studies, 33 (2): 291-307.
  • Hanke, S. H. and Walters, S. J. (1997). Economic freedom, prosperity, and equality: A survey. Cato Journal, 17 (2):117-146.
  • Harkati, R., Alhabshi, S.M. and Kassim, S. (2019). Influence of economic freedom and its subcomponents on risk-taking behavior: Evidence from dual banking system of Malaysia, Review of Behavioral Finance, 12 (4): 335-356.
  • Heckelman, J. C. (2000). Economic freedom and economic growth: a short-run causal ınvestigation, Journal of Applied Economics, 3 (1):71–91.
  • Heritage Foundation (2020). Abaut to Index. https://www.heritage.org/index/about Accessed: 18 November 2020.
  • Holtz-Eakin, D., Newey, W., and Rosen, H. S. (1988). Estimating vector autoregressions with panel data, Econometrica, 56 (6): 1371.
  • Im, K. S., Pesaran, M. H., and Shin, Y. (2003). Testing for unit roots in heterogeneous panels, Journal of Econometrics, 115 (1):53–74.
  • Jackson, J. J. (2016). Economic freedom and social capital: pooled mean group evidence, Applied Economics Letters, 24 (6): 370–373.
  • Khan, M. A., Islam, M. A., and Akbar, U. (2020). Do economic freedom matters for finance in developing economies: a panel threshold analysis, Applied Economics Letters, DOI: 10.1080/13504851.2020.1782335
  • Korle, K., Amoah, A., Hughes, G., Pomeyie, P. and Ahiabor, G. (2020). Investigating the role of disaggregated economic freedom measures and FDI on human development in Africa, Journal of Economic and Administrative Sciences, 36 (4): 303-321.
  • Lawson, R. A., Murphy, R., and Powell, B. (2020). The determinants of economic freedom: a survey, Contemporary Economic Policy, 38 (4): 622-642.
  • Liao, M.-Y. (2018). International evidence on economic freedom, governance, and firm performance, International Corporate Governance and Regulation (Advances in Financial Economics, Vol. 20), Emerald Publishing Limited, pp. 85-103.
  • Love, I., and Zicchino, L. (2006). Financial development and dynamic investment behavior: Evidence from panel VAR, The Quarterly Review of Economics and Finance, 46(2): 190–210.
  • Memoli, V. and Quaranta, M. (2019). Economic evaluations, economic freedom, and democratic satisfaction in Africa, The Journal of Development Studies, 55 (9): 1928-1946.
  • Murphy, R.H. (2019). Economic freedom variables endogenous to business cycles, Journal of Financial Economic Policy, 12 (1):65-75.
  • Peev, E., and Mueller, D. C. (2012). Democracy, economic freedom and growth in transition economies, Kyklos, 65 (3):371–407.
  • Pérez-Moreno, S., and Angulo-Guerrero, M. J. (2016). Does economic freedom increase income inequality? Evidence from the EU countries, Journal of Economic Policy Reform, 19(4):327–347.
  • Piątek, D., Szarzec, K., and Pilc, M. (2013). Economic freedom, democracy and economic growth: a causal investigation in transition countries, Post-Communist Economies, 25(3): 267–288.
  • Quazi, R. (2007). “Economic freedom and foreign direct investment in East Asia”, Journal of the Asia Pacific Economy, 12(3): 329–344.
  • Sambharya, R.B. and Rasheed, A.A. (2015). Does economic freedom in host countries lead to increased foreign direct investment?, Competitiveness Review, 25(1): 2-24.
  • Santiago, R., Fuinhas, J. A., and Marques, A. C. (2018). The impact of globalization and economic freedom on economic growth: the case of the Latin America and Caribbean countries, Economic Change and Restructuring. doi:10.1007/s10644-018-9239-4.
  • Sarpong-Kumankoma, E., Abor, J.Y., Aboagye, A.Q.Q. and Amidu, M. (2020). Economic freedom, competition and bank stability in Sub-Saharan Africa, International Journal of Productivity and Performance Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJPPM-06-2019-0310.
  • Scully, G. W. (2002). Economic freedom, government policy and the trade-off between equity and economic growth, Public Choice 113: 77–96.
  • Seyoum, B. and Ramirez, J. (2019). Economic freedom and trade flows: A moderated mediation model of inward foreign direct investment (FDI) and government stability, Journal of Economic Studies, 46(4): 985-1006.
  • Shaar, K., and Ariff, M. (2016). Re-examination of price level differentials using economic freedom index, The Journal of International Trade & Economic Development, 25(6): 880–896.
  • Shumway, J. M., and Davis, J. A. (2015). Economic freedom, migration, and ıncome change in the united states: 1995 to 2010, The Professional Geographer, 68(3): 390–398.
  • Sims, C. A. (1980). Macroeconomics and Reality, Econometrica, 48(1): 1.
  • Singh, D., and Gal, Z. (2020). Economic Freedom And İts Impact On Foreign Direct Investment: Global Overview, Review of Economic Perspectives – Národohospodářský obzor, 20(1):73–90.
  • Sturm, JE., and De Haan, J. (2001). How Robust Is The Relationship Between Economic Freedom And Economic Growth? Applied Economics, 33(7): 839-844.
There are 46 citations in total.

Details

Primary Language English
Journal Section Research Article
Authors

Baki Özsolak 0000-0002-2791-3833

Hakan Kum 0000-0002-7880-8355

Early Pub Date June 30, 2021
Publication Date June 30, 2021
Published in Issue Year 2021 Volume: 18 Issue: 1

Cite

APA Özsolak, B., & Kum, H. (2021). Does Economic Freedom Improve Macroeconomic Performance? A New Research with the PVAR Method in the G-7 Group. Çağ Üniversitesi Sosyal Bilimler Dergisi, 18(1), 9-20.