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Economic freedom, foreign direct investment, and economic growth: The role of sub-components of freedom

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  • Cemil Ciftci
  • Dilek Durusu-Ciftci

Abstract

This study investigates the causality relationships among the economic freedom, foreign direct investment (FDI), and economic growth for top FDI attracting countries during 1995–2019. Apart from the previous studies, we examine these three sets of causal links simultaneously and use the panel Granger causality test of Kόnya [2006. “Exports and Growth: Granger Causality Analysis on OECD Countries with a Panel Data Approach.” Economic Modelling 23: 978–992], which considers heterogeneity and cross-sectional dependency across panel members. The findings provide weak evidence for the causal links between economic freedom, FDI, and economic growth for the overall score of economic freedom index. We also conduct causality tests for freedom vs. FDI, freedom vs. growth, and FDI vs. growth by using sub-components of the freedom index and reveal too many causality linkages among these variables. Thereby, we conclude that the direction of causality seems to be country and economic freedom indicator specific. These results have important implications for policymakers.

Suggested Citation

  • Cemil Ciftci & Dilek Durusu-Ciftci, 2022. "Economic freedom, foreign direct investment, and economic growth: The role of sub-components of freedom," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 31(2), pages 233-254, February.
    • Handle: RePEc:taf:jitecd:v:31:y:2022:i:2:p:233-254
    DOI: 10.1080/09638199.2021.1962392
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    Cited by:

    1. Kashif Islam & Ahmad Raza Bilal & Zeeshan Saeed & Samina Sardar & Muhammad Husnain Kamboh, 2023. "Impact of government integrity and corruption on sustainable stock market development: linear and nonlinear evidence from Pakistan," Economic Change and Restructuring, Springer, vol. 56(4), pages 2529-2556, August.
    2. Nguyen Tan Hung & Tran Thi Kim Oanh & Chu Thi Thanh Trang, 2024. "The impact of economic freedom on economic growth in countries with high and low regulatory quality—lessons for Viet Nam," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-15, December.
    3. Guo, Jialin & Wu, Desheng, 2024. "Capital market openness and bank credit risk: Evidence from listed commercial banks," Finance Research Letters, Elsevier, vol. 63(C).
    4. Huang, Geng & Lin, Xi & He, Ling-Yun, 2023. "Good for the environment? Foreign investment opening in service sector and firm's energy efficiency," Energy Economics, Elsevier, vol. 127(PA).
    5. Nadia Ben Yedder & Malek El Weriemmi & Sayef Bakari, 2023. "The Impact of Domestic Investment and Trade on Economic Growth in North Africa Countries: New Evidence from Panel CS-ARDL Model," EuroEconomica, Danubius University of Galati, issue 2(42), pages 22-41, November.
    6. Zheng, Chengting & Wu, Shufang & Teng, Yin-Pei & Wu, Shuzhao & Wang, Zhe, 2023. "Natural resources, tourism resources and economic growth: A new direction to natural resources perspective and investment," Resources Policy, Elsevier, vol. 86(PB).
    7. Hosein Mohammadi & Samira Shayanmehr & Juan D. Borrero, 2022. "Does Freedom Matter for Sustainable Economic Development? New Evidence from Spatial Econometric Analysis," Mathematics, MDPI, vol. 11(1), pages 1-19, December.
    8. Jen‐Chung Mei, 2023. "Foreign direct investment and relative capacity: Theory and evidence," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(4), pages 1175-1214, October.
    9. Cong Tam Trinh & Minh-Tri Ha & Nhut Quang Ho & Tho Alang, 2023. "National culture, public health spending and life insurance consumption: an international comparison," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-14, December.

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