Economic Freedom Research Articles

Research on the Impact of Digital Trade on the Reconstruction of Global Value Chains —An Empirical Analysis Based on Cross-national Panel Data

With increasing refinement in production, advancements in information technology, and optimized transport, enterprise value chains have become global. This international division of labor based on Global Value Chains (GVCs) has driven economic growth but also caused issues like income disparity and status inequality. Developed countries aim to maintain dominance in GVCs, while developing countries seek greater participation and advancement within them. For developing nations, breaking the “low-end lock” in GVCs is crucial. This paper empirically examines the complex relationship between digital trade and global value chain reconstruction, and explores the moderating effect of institutional environmental factors on the above relationships. This enriches the research perspective and expands the research at the intersection of digital trade and value chain. Findings suggest that digital trade affects China’s position and participation in global value chains, with institutional quality and economic freedom moderating these effects. This research contributes to understanding the complex dynamics of digital trade and value chain reconstruction, highlighting China’s potential to ascend the global value chain through digital trade development.

WHY ECONOMIC FREEDOM MATTERS IN DETERMINING FINANCIAL STABILITY: A CASE STUDY ON SIX EASTERN EUROPEAN COUNTRIES

The down turning events from the beginning of the XXIst century, starting with the 2008 crisis and then the COVID-19 pandemic, shortly followed by Russia’s invasion in Ukraine, exacerbated some preexisting vulnerabilities and created new risks. In this context, the financial stability in the Eastern European states (we will consider "Eastern Europe" in Winston Churchill's terms, namely those countries on the eastern flank of the Iron Curtain) represents an important debating issue for both policy-makers and researchers. Therefore, the present paper aims to quantify the financial stability and to determine the factors that can influence it. In doing so, we first have to establish what we consider to be financial stability: what it means at the microeconomic level (focusing on the behavior of the citizens) and what it means at the macroeconomic level (looking at the role of states in ensuring financial stability). It is important to note that the analysis we wish to undertake will be at a regional rather than at an overall European level, focusing on the Eastern European countries that have joined the European structures. We will present, by means of statistical analysis, the importance that both economic freedom and education have in increasing the financial stability of Eastern European citizens, taking into account the evolution of the financial stability of Eastern European citizens over the last years. In order to perform an analysis for more countries and over a longer period of time, we will utilize panel data analysis. We will observe the role that both variables play in ensuring a greater level of financial stability for the people from these countries.

The zero-debt puzzle in BRICS countries: Disentangling the financial flexibility and financial constraints hypotheses

This study analyzes the zero-debt decisions of BRICS firms using a bivariate probit model. The leading hypotheses are financial flexibility and financial constraints. On the demand-side, our findings reveal that managerial debt aversion, early lifecycle stage, growth opportunities, solvency, and concentrated ownership contribute to the lack of debt. Similarly, a country's institutional quality correlates with firms' debt-free status. On the supply-side, creditors fund companies with poor financial records in countries with robust markets and economic freedom. Financial flexibility and restrictions leading to zero debt are linked to firm and institutional characteristics in emerging countries.

European Structural and Investment Funds (ESIFs) and Regional Development across the European Union (EU)

This scoping review synthesizes the evidence from eleven key studies to assess the impact of European Structural and Investment Funds (ESIFs) on regional development across the European Union (EU), focusing on fund efficiency, regional disparities and convergence, governance quality, economic freedom, and fund management. A systematic search was conducted across multiple databases to identify the relevant literature published up to 2023. Eleven studies were selected based on the date published and their focus on ESIFs’ role in regional development, employing a range of methodological approaches including Data Envelopment Analysis (DEA), spatial econometrics, and multivariate analyses. The thematic analysis identified four main categories: Methodological Approaches in Evaluating Fund Efficiency, Regional Disparities and Convergence, The Interconnection between Governance Quality, Economic Freedom, and the Efficiency of Structural Fund Management, and The Absorption Capacity and Fund Management. The review highlights the importance of sophisticated analytical tools in evaluating fund efficiency, with DEA and spatial econometrics providing critical insights into fund management efficiency. Studies underscored the nuanced efficacy of ESIFs in reducing regional disparities, albeit pointing to the need for more targeted fund allocation. Governance quality and economic freedom emerged as pivotal factors enhancing fund management efficiency, suggesting the potential of governance reforms in optimizing ESIF allocation and utilization. Challenges related to fund absorption and management were illuminated, advocating for enhanced institutional management capabilities and the development of innovative performance indicators. The findings of this scoping review contribute to a deeper understanding of the complexities surrounding ESIFs’ impact on regional development within the EU. They underscore the critical importance of governance quality, economic freedom, methodological rigor, and strategic fund allocation in enhancing the effectiveness of ESIFs. The review calls for tailored policy interventions and the integration of national and European funding strategies to maximize the impact of these programs on regional development and SME support. Future research should continue to refine these methodological approaches and explore the causal effects of funding, to enhance our understanding of ESIFs’ efficiency in promoting regional development and convergence within the European Union.

Similarities of the V4 Countries Characterised by the Business Environment Quality and Megatrends

Every economy possesses its unique characteristics and forces forming and affecting that particular business environment. Despite the differences in conditions, quality and interventions in the business environment, there are similarities within the specified deviations. Based on these similarities, it is possible to determine the common lines of countries within which their business environments and trends develop over time. The paper focuses on finding that lines through the division of the countries of the V4 into clusters according to indicators of the business environment quality and selected megatrends over time. Using cluster analysis performed in SPSS Statistics 26 for the chosen period from 2011 to 2022, countries are divided into clusters based on indicators of economic environment and megatrends. For the purpose of this study the index of economic freedom, change in economic power, lack of resources, technological breakthrough, social changes, and rapid urbanization. Based on the results of the cluster analysis, the degree of similarity of the economies represented by the quality of the business environment and selected global trends is identified during the monitored period, and vice versa the degree of differences within selected subjects is identified.

Financial awareness, risk aversion and portfolio choice

ABSTRACT “The financial market participation puzzle remains one of the most explored yet unanswered areas in finance. We extend the debate of portfolio choice by examining stock and derivatives market participation by focusing on two key investor traits: financial awareness and risk aversion. We use an investor survey conducted by the Securities and Exchange Board of India (SEBI), covering over 15,000 Indian investor responses. We find that risk aversion is associated with a 20% lower probability of market participation, whereas risk-averse individuals having high financial awareness are around 3.3% more likely to participate in financial markets. Furthermore, financial awareness and risk aversion are more significant in areas with higher economic freedom and lower social capital. Our findings suggest that policymakers may consider tailored financial awareness programmes based on differences in risk aversion among the investors as both these characteristics have a combined relationship with financial market participation.

Economic freedom, the minimum wage, and food insecurity

AbstractEconomic freedom, a measure of the degree of freedom from government intervention in the economy, has been found to be associated with many positive economic outcomes, such as lower unemployment rates, and higher growth of income, employment, and population. One area that remains unexplored is the relationship with food insecurity. Areas with more government intervention may be expected to have higher food insecurity because those interventions can create greater impediments to people's ability to prosper economically. One specific example of that is the minimum wage, which may make it harder for inexperienced low‐skilled workers to obtain employment. We provide the first state‐level examination of the relationship between food insecurity and economic freedom and find higher values of economic freedom (lower levels of intervention) are associated with lower food insecurity. We also examine one specific component of that economic freedom measure, the minimum wage, and find some limited evidence that higher minimum wages are associated with higher food insecurity.

Analyzing the impact of fiscal conditions on private health expenditures in OECD countries: a quantile ARDL investigation

Organization for Economic Co-operation and Development (OECD) countries have embraced the aim of universal health coverage, as established in Sustainable Development Goal (SDG) 3.8. This goal guarantees access to quality healthcare services without financial hardship or poverty. Additionally, it requires correct and adequate financing sources. A country with weak protection for its population tends to spend less on healthcare and experiences a high share of out-of-pocket payments (OOPs), increasing the likelihood of people falling into poverty. This study aims to understand the relationship and causal effects between macroeconomic and public fiscal conditions and private health expenditure in OECD countries between 1995 and 2019. We retrieved OECD data for 26 OECD countries for the period 1995–2019. Panel AutoRegressive Distributed Lag (PARDL) and panel quantile AutoRegressive Distributed Lag (PQARDL) models were estimated to examine the relationship between private health expenditures and macroeconomic and public fiscal variables. Our results reveal a positive influence of government debt and economic freedom on private health expenditures. They also show a negative influence of the government budget balance, government health expenditures, and economic growth on private health expenditures. These results collectively suggest that public fiscal conditions will likely impact private health expenditures. The findings of this study raise concerns about the equity and financial protection objectives of universal health coverage in OECD countries.

Geopolitical risk and tourism in Turkey

PurposeThe purpose of this paper is to show the effect of Turkey's geopolitical risk on the number of international tourist arrivals to the country. When Turkish economy in 2019 is analyzed, it is seen that the share of tourism in national income is 11%. For this reason, national economy is significantly affected by changing of the number of international tourist arrivals. Security problems are an important variable affecting tourist arrivals.Design/methodology/approachThe paper focused on secondary data for the period 2000–2019 for macroeconomic variables. Accordingly, the number of international tourist arrivals was added as a dependent variable, geopolitical risk as an independent variable, gross domestic product (GDP) and economic freedom index as control variables and inflations as an external variable to the model. The residual augmented least squares–the autoregressive distributive lag (RALS-ADL) cointegration test and the dynamic ordinary least squares (DOLS) coefficient estimator were used. It allows for more robust results to be obtained when the residues do not have a normal distribution.FindingsThe RALS-ADL cointegration test result shows that there is a cointegration relationship between variables at a 1% significance level. Moreover, the DOLS coefficient estimator results indicate that an increase in economic freedom and GDP increase the number of international tourists, whereas an increase in the Geopolitical Risk Index and inflation decreases the number of international tourism arrival. It can be said that tourists consider the security and economic stability of the host country when making tourism decisions.Originality/valueTurkey is one of the most risky developing countries, as well as one of the most popular travel destinations. When the literature is examined, it has been found that studies for Turkey usually determine the relationship between the variables for a short period of time. However, to ensure sustainable growth and environment of confidence, the long-run relationship between variables should be determined so that policymakers can make more impactful decisions. Therefore, the aim of this study is to make a literature contribution, taking into account the long-term effects. In addition, unlike other studies, this study fills the gap in literature using the RALS-ADL cointegration test, which produces robust estimators.

IMPACT OF THE DIMENSIONS OF THE QUALITY OF INSTITUTIONS SUCH ON THE FLOW OF FOREIGN DIRECT INVESTMENT TO DEVELOPING ECONOMIES.

The aim of this study was to examine the effect of the dimensions of the quality of institutions such as: economic quality, political risks, the quality of the financial sector, and the quality of transportation means on the flow of foreign direct investment (FDI) to developing economies. The study was conducted in the most developed 7 economies among the developing countries. In addition, the study also made a comparison between the 7 emerging economies to identify which of them were affected by the established quality determinants for the period from 2002 to 2017. The data were analyzed using the regression model. The results of the study indicate a negative impact of the economic freedom and the quality of the financial sector on the flow of FDI. The study did not indicate the existence of a statistically significant effect to the political risks and the quality of transportation on the flow of FDI.

Score-driven latent-factor panel data models of economic freedom: an empirical application to the United States

ABSTRACT In this paper, we study the link between economic freedom and gross domestic product (GDP) growth of 12 industries making up the United States (US) economy for 50 US states from 2005 to 2020. To measure the industry-specific impact of economic freedom in the US, we use a novel panel data model, named the score-driven latent-factor panel data model of economic freedom, which includes US state- and industry-specific score-driven components, US state- and industry-specific unobserved effects, and federal-level latent factor. We show that the statistical performance of the novel panel data model is superior to those of classical static and dynamic panel data models. With the exception of the ‘Agriculture’ and ‘Utilities’ industries, we find a positive relationship between economic freedom and growth in 10 of the 12 US industries considered for the score-driven latent-factor panel data model.

Economic globalisation and Africa's quest for greener and more inclusive growth: The missing link

This study examines the contingency and threshold effects of economic freedom in the economic globalisation (EG) and inclusive green growth (IGG) relationship. To this end, we apply the fixed-effects generalized method of moments with Driscoll-Kraay standard errors estimator to macro data for the period 2008–2020 for 22 selected African countries. The following findings are established. First, we find that economic freedom reduces the negative effect of EG on IGG. Second, when we disaggregate EG into financial and trade globalisation, we show that the moderating effect of economic freedom on the former is rather striking. Third, our threshold analysis suggests that by improving Africa's unfree economic architecture to 60% (moderately free), the IGG-deteriorating marginal effects of EG are significantly mitigated (but not nullified). We conclude that unless an effort is made to improve economic freedom in Africa, the envisaged IGG gains of economic globalisation might prove elusive.

Technological innovation and energy efficiency in central Eastern European countries

This study examines the causal relationship between technological innovation and energy efficiency in Central and Eastern European countries. The results indicate that technological innovation significantly impacts energy efficiency in the Czech Republic, Latvia, Lithuania, Slovakia, and Slovenia through various economic and political factors. Conversely, energy efficiency also significantly affects technological innovation in Estonia, Hungary, and Slovakia. These findings suggest that energy efficiency is a function of the rate of innovation adoption. It is recommended that these countries prioritize implementing reforms that bolster economic freedom and institutional quality to foster innovation.

Evaluating the Influence of Taxation Levels on the Degree of Economic Freedom of Countries

Evaluating the Influence of Taxation Levels on the Degree of Economic Freedom of Countries

Rawls and Economic Liberties

Rawls and Economic Liberties

МОДЕЛІ «ДЕРЖАВИ ЗАГАЛЬНОГО ДОБРОБУТУ» ТА ЇХНІ ХАРАКТЕРИСТИКИ

The article examines the peculiarities of the welfare state model, which has been constantly changing, transforming, having different options for implementation, going through a crisis and post-crisis development. It is determined that only the state, in the policy of the welfare state, acts as a guarantor of social rights and opportunities for its citizens. The author reveals the types of welfare models and their main characteristics that determine the peculiarities of social policy implemented by countries. It is established that the model of the “welfare state” has experienced an economic, ideological and philosophical crisis, which has led to the need to update and modernize the conceptual foundations of its implementation. The author proves that changes in the country’s social policy allow for a clear distinction between programmatic retrenchment and systematic retrenchment, i.e., reduction of social programs or reduction of social expenditure financing in the welfare state model. The author reveals the typology of models of management of the state social policy, in particular: pluralistic, corporate, Marxist and elite models. It is proved that the main social task of the state’s economic policy is “not to distribute benefits, but to ensure the conditions of freedom and independence of individuals who are able to create these benefits and take care of themselves and their families on their own”. The modern version of the socio-economic model of the “welfare state” is to create conditions that will ensure the synergy of market self-regulation and state intervention, and can be implemented in the areas of economic freedom and personal development. In addition, the areas of development of the welfare state are: risks and innovations, social solidarity, social justice, lifelong support, distribution of difficulties between generations, which is part of the concept of sustainable development. It is established that the transformation of the welfare state model leads to a change in the mechanisms and instruments for its implementation, in particular: universalization of social expenditures; policy coherence between social, economic and environmental aspects of development; search for inclusive forms of its implementation and partnership between the State, civil society and business; identification of new directions in global and regional social policy. It is established that the choice of implementing the “welfare state” model depends on the historical, socio-cultural and economic conditions prevailing in a country and is determined by the type of its socio-political system, ideological and spiritual principles, and the peculiarities of the stage of development. Key words: welfare, state, models of the welfare state, social justice, social security.

How does climate change risk affect energy poverty? International evidence.

Based on cross-country data from 2002 to 2019, we explore the impact of climate change risk (CCR) on energy poverty (EP), and the moderating role in the CCR-EP nexus is also discussed. The empirical results suggest that CCR can exacerbate EP, especially for rural areas. Moderating effect analysis shows that financial development, technological innovation, and adaptation readiness can modify the negative impacts of CCR on EP to some extent. Moreover, the impact of CCR on EP is heterogeneous, demonstrating that CCR is more likely to exacerbate EP in countries with low economic development, low economic freedom, high carbon intensity, and the Africa region. Our findings emphasize the challenge of balancing EP alleviation with climate change response and provide the policy guidance to promote coordinated development of CCR management and energy supply security.

The effect of education on economic institutions

ABSTRACT This research is the first to use the Heritage Foundation economic freedom index as a measure of economic institutions in order to examine the relationship between education and economic institutions. It presents a variety of empirical evidence to show that education predicts economic institutions whereas the inverse is not true. It uses 2SLS, with the level of education in 1950 as the instrument for the level of education in 2015, and finds that the effect of education on economic institutions is positive and statistically significant. Also, this paper uses fixed effects in order to control for country-level omitted variables that may affect both economic institutions and the instrument. Finally, it uses difference GMM, and system GMM. These regressions exploit both the cross sectional and the time series variation in the data, address endogeneity, and confirm that the effect of education on economic institutions is positive and statistically significant.

The influence of institutional quality, economic freedom, and technological development on Islamic financial development in OIC countries

This study investigates the relationship between Institutional quality, Economic freedom, technological advancement, and Islamic financial development in selected OIC countries. This study employs the panel estimation method to examine annual data pertaining to Islamic bank industries across 22 countries, sourced from the SESRIC database, from 2013 to 2021. The findings show that the overall quality of institutions and economic freedom influence Islamic finance development. Further, the contribution of technological development appears when institutional quality indicates higher performance. Despite the predominant correlation observed among institutional indicators, this study, focusing on a comprehensive index, reveals a consistent and significant contribution of institutional quality to the growth of Islamic finance. Furthermore, this study's findings show that institutional quality and economic freedom are related; yet, the methods by which the foundations of each indicator influence financial development differ. The findings of this research underscore the importance of urging policymakers, particularly governmental authorities, to prioritize the development of policies and initiatives aimed at fostering a healthy and conducive environment. Emphasizing practical and transparent institutional frameworks is essential for cultivating a well-regulated economic environment.

Toward a Sustainable Development of E-Commerce in EU: The Role of Education, Internet Infrastructure, Income, and Economic Freedom on E-Commerce Growth

The emergence of e-commerce reshaped the traditional trade models, also playing a significant role in meeting the UN sustainable development goals. According to the UN, sustained growth and social development must include resilient infrastructure, foster innovation, allow for better access to information and communications technology, and universal and affordable internet infrastructure. This study explores a multidimensional analysis of e-commerce development in the EU generated by the following factors: education, internet infrastructure, income, and economic freedom. We use an ARDL econometric model and Eurostat data. Additionally, we analyze the time responsiveness of e-commerce growth to changes in these factors. In the long run, our findings identify a stable and positive relationship between e-commerce and all these factors. However, in the short run, our results illustrate significant dynamics between two variables and e-commerce. Specifically, the level of internet access and the percentage of individuals who use the internet daily exhibit a positive short-run impact on e-commerce sales, with the system absorbing shocks within a short period. This research advocates for targeted policies that support innovation, fair competition, and consumer protection in the digital economy. This research provides valuable guidance for policymakers and stakeholders in improving the institutional framework to promote a sustainable development of e-commerce in the EU.