Abstract
Africa in general and precisely Sub-Saharan Africa (SSA) has been performing dismally in economic freedom determination parameters. This has substantially diminishes the probabilities of keeping up with other regions which have so far flourished in terms of sustainable economic and human development as highlighted through economic freedom index by the Heritage Foundation 2021. It is for this reason that this study purpose to investigate the influence of value added components of GDP on economic freedom. This is explored using a panel of 40 Sub-Saharan African (SSA) countries from 1995 to 2019. Using both conventional unit root and co-integration tests showed that all the series are stationary and co-integrated of order one I(1). Further estimations on the long-run relationship using dynamic panel econometric techniques key in accounting for panel data hiccups. Specifically, fixed effect and general method of moments which is adopted to discourse concerns of endogeneity and serial correlation commonly associated with panel data. Key significant results based on GMM indicate that both value added growth components of industry and service sectors positively and significantly influences economic freedom but the effect is negative regarding value added from agriculture sector. Inward FDI was equally found to positively influence for the overall score of economic freedom for SSA The practical implication is that for an increasing economic freedom, SSA economies or decision makers should gear for policies that improve industrial production by creating an enabling environment, encouraging the service sector through incentives and tax holidays, diversify agriculture and minimize wasteful FDI inflow. All these are critical in a bid to the realization of competitive economic freedom in SSA.
Highlights
The idea of economic freedom is no longer a new concept, it has previously been debated extensively by different economists applying diverse approaches since the proper documentation of economic theory from the time of Adam Smith; Corbi (2007); N. Ismail (2010)
The results indicate that, upsurge in economic freedom is related to economic growth his study was in line with works of Malanski and Póvoa (2021); Piątek, Szarzec, and Pilc (2013), Bayar (2017) who discovered that economic freedom was necessary to spur economic growth in an economy
Our dataset has been obtained from Heritage Foundation for economic freedom while the data for the remaining variables were obtained from the World Development Indicators database (WDI)6 published by the World Bank (2021)
Summary
The idea of economic freedom is no longer a new concept, it has previously been debated extensively by different economists applying diverse approaches since the proper documentation of economic theory from the time of Adam Smith; Corbi (2007); N. Ismail (2010). All these study works in perspective have given less attention to the vice versa (i.e., the influence growth has on economic freedom). This idea of economic freedom which was for long abandoned, has nowadays become centerpiece of macroeconomic discussion for developmental economists. This move has been facilitated by the resurgence of indices for ranking various countries’ on economic freedom scale mostly calibrated from least ‘Free’ to ‘Freest’. Two widely accepted indices of economic freedom exist; the Fraser Institute index and the Heritage Foundation index 2 that implore similar measurement techniques in calibrating economic freedom. This study adopted the Heritage foundation index in line with most studies of economic freedom literature; Singh and Gál (2020). Doran and Stratmann (2021)
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