Economic freedom influences economic growth and unemployment: an analysis of the Eurozone

Abstract

Lack of economic growth and a high unemployment rate imply poverty and inequality. Economic freedom is considered a relevant explanatory factor for growth, employment and the distribution of income. The present research work addresses how policy makers should take into account economic freedom aspects to effectively enhance a country’s economic growth and lower its unemployment rate. This study analyses the effect of four components of economic freedom (business freedom, labour freedom, government integrity, tax burden) on the mean GDP growth of the last 5 years, and also on unemployment. A cross-national analysis, based on data from the 23 Eurozone3 (Eurozone and part of its enlargement) Member Countries, examines the causal configurations of GDP and unemployment by a fuzzy-set qualitative comparative analysis. The results suggest that the combination of high levels of business freedom, labour freedom and government integrity triggers high levels of economic growth and lowers the unemployment rate.