The relationship between economic freedom, political freedom and economic growth

Abstract

The research aims to investigate the relationship between economic freedom, political freedom and economic growth. The Arab Spring placed renewed interest on the topic of freedom, yet current economic conditions seemingly contradicted the established theory. The largest free economies were being outperformed by those with less political and economic freedom.Three objectives were specified to answer the research question. The first objective aimed to determine the association between economic freedom, political freedom and economic growth, for which Spearman’s correlation was used. The second objective aimed to investigate causal relationships between the variables, for which Granger’s causality was employed. The third objective aimed to examine complex relationships between the variables, for which vector autoregression was used.Economic growth was weakly correlated with the independent variables. Civil liberties, political rights and economic freedom, however, had strong correlations with each other. Economic freedom and economic growth had bi-directional Granger-causality. Political rights Granger-caused economic freedom whilst civil liberties Granger-caused political rights and economic freedom. Using vector autoregression, the model consisting of economic growth, economic freedom and civil liberties had the greatest explanatory power towards economic growth. Existing theory therefore remains valid: political freedom enhances economic freedom, which, in turn, enhances economic growth.The relationship between economic freedom, political freedom and economic growth