Economic freedom, democracy and economic growth: a causal investigation in transition countries

Abstract

This article addresses the issue of causality in the relationship between political and economic freedom and economic growth in transition countries. This problem has been discussed in the literature but the results concerning political freedom and economic growth are still ambiguous. Moreover, owing to the impact of time we now have at our disposal significantly longer time series, which in this kind of research is especially important. The analysis was conducted for 25 post-socialist countries for 1990–2008 using a set of 20 indicators of economic and political freedom and Granger causality tests. The results show that although economic freedom has a positive impact on economic growth in transition countries, political freedom is neutral for economic growth; changes in the level of political freedom are however influenced by economic growth.