Abstract
This study looks at some non-conventional determinants of economic growth, with the help of the newly developed economic freedom index datasets of the Heritage Foundation/Wall Street Journal(HF/WSJ), which is a cumulative index derived from several sub-indices (trade freedom index, financial freedom, labor freedom, business and fiscal freedom index). The cumulative economic freedom index show us how open and business friendly a country is. The sub-indices show us openness across different sector of the economy, for example, the financial sector or the trade sector etc. Traditional neo-classical economic theories have explained economic growth looking at the supply of labor, capital and state of technology, with little attention being paid to institutional factors. The study presents evidence based on two panel data-sets. The first set consists of 186 countries over the period 2013, 2014 and 2015 that show institutional factors play a crucial role in economic growth. A second data-set with data for 57 countries for the period 2004–2014 also show a positive impact on the index on the growth rate of per capita GDP.
Highlights
The non-economic determinants of growth rate have been under increased scrutiny in the academia in the recent past
As a prelude to our study, we find the regression results yield strong evidence in support of a positive association between economic growth and the economic freedom index in both the data sets
Summary statistics for the trade freedom index, financial freedom index, business freedom index, labor freedom and fiscal freedom indices are reported in this table
Summary
The non-economic determinants of growth rate have been under increased scrutiny in the academia in the recent past. Economies 2016, 4, 5 determinants play an important role in economic growth They define the environment under which the factors of production, labor and capital can perform. Scholars believe that more research is needed to find the role such factors play in economic development, especially in developing countries This will alsoenable the government, academia and policy makers to formulate appropriate policy and achieve a higher growth rate with the same quantity of resources and with the help of an improved business environment. Export oriented growth strategy can pave the way for economic integration and ensures inflow of capital and technology as foreign firms utilize the freer business environment and invest in these countries This strategy puts emphasis on more liberal trade policy.
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