Relationship between economic freedom and inclusive growth: a dynamic panel analysis for sub-Saharan African countries

Abstract

Recent debates in economic development emphasize the importance of economic freedom and inclusive growth, particularly in developing countries. The aim of this study is to analyze the relationship between economic freedom and inclusive growth in thirty sub-Saharan African countries during the period 1996–2016. We use, for that purpose, the system GMM estimation and a panel causality test in a dynamic framework. Inclusive growth is measured by the GDP per person employed in Purchasing Power Parity, and the Heritage Foundation Economic Freedom Index is used to measure economic freedom. After taking into account cross-sectional dependence, the results suggest a positive and significant effect of the level of economic freedom and of the changes in the level of economic freedom on inclusive growth. Evidence is provided for a causal relationship from economic freedom to inclusive growth but not the other way.