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The Nexus between Economic Freedom and Economic Growth in the Least Developed Countries. An Empirical Analysis for the Period of 2000-2021

Author

Listed:
  • Antonio Afonso

    (ISEG – Lisbon School of Economics and Management, Universidade de Lisboa & REM – Research in Economics and Mathematics, UECE – Research Unit on Complexity and Economics & CESifo Research Fellow)

  • M. Carmen Blanco-Arana

    (- Faculty of Economics and Business Studies, University of Malaga, Department of Applied Economics (Public Finance, Economic Policy and Political Economy), Spain)

Abstract

Economic freedom is the fundamental right of every human to control his or her own labour and property, and therefore it constitutes the essence of the market economy. In this sense, economic freedom leads to economic growth and although economic freedom can have an impact on economic growth, it is necessary to specify those aspects of freedom that can foster growth. This paper examines the nexus between economic freedom and economic growth in the Least Developed Countries (LDCs), using panel data for the period of 2000-2021. In particular, we investigate the effects of economic freedom on economic growth in the LDCs by using the 12 dimensions of the economic freedom index published by the Heritage Foundation. Accordingly, this study investigates the potential effects of freedom on growth, revealing that economic freedom is a growth stimulus factor and although not all pillars are determinants of growth in the LDCs, the significance of economic freedom as a whole is crucial. By using different estimation methods (Fixed effects model and Principal Component Analysis), we confirm that economic freedom influences growth in the LDCs. Furthermore, certain variables related to financial development, political stability, capital formation and education, are key for attaining economic growth in these countries.

Suggested Citation

  • Antonio Afonso & M. Carmen Blanco-Arana, 2024. "The Nexus between Economic Freedom and Economic Growth in the Least Developed Countries. An Empirical Analysis for the Period of 2000-2021," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 74(2), pages 191-220, May.
    • Handle: RePEc:fau:fauart:v:74:y:2024:i:2:p:191-220
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    File URL: https://journal.fsv.cuni.cz/mag/article/show/id/1532
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    More about this item

    Keywords

    economic freedom; economic growth; LDCs; financial development; panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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