Economic Freedom Index Research Articles

Free-market institutions and income inequality: Did the link persist around the world even in times of falling within-country inequality, 2000–2021?

High or rising economic inequality can exacerbate political inequalities and is plausibly linked with some social harms, such as health problems and declines in happiness and trust. Within-country income inequality increased sharply across most of the world since the 1980s. One prominent critical sociological account of this occurrence points toward institutions of free-market capitalism, or “neoliberalism,” as a key cause that unleashed inequality during the globalization age. This article empirically operationalizes free-market institutions with the use of Fraser Institute’s index of economic freedom and examines the issue with fixed-effects regressions in a novel dataset of 130 countries between the years 2000 and 2021. It finds a substantial positive correlation between the two variables in the developing, though not the developed, world. This finding is robust to a variety of alternative specifications. Moreover, across specifications, modest size of government and freedom of international trade stand out as the two clear components of economic freedom driving the aggregate relationship. Finally, mediation analysis suggests there also exists an indirect ameliorative relationship between economic freedom and inequality through the conduit of economic development.

Exploring the role of governance in determining public-private investment in energy: New empirical insights from ASEAN

The energy sector plays a pivotal role in driving economic growth and enhancing social welfare. However, the mobilization of sufficient investment including public and private remains crucial for advancing energy infrastructure development. Against this backdrop, this study aims to explore the role of governance in determining public-private investment in energy (PPE). The empirical analysis leverages a comprehensive dataset spanning 25 years from 1998 to 2022 and covering ASEAN nations. The study employs the CS-ARDL (cross-sectionally augmented autoregressive distributed lag) model for regression analysis to assess governance dimensions' long-term and short-term effects on PPE. Additionally, the study conducts robustness analysis by using the FMOLS (fully modified ordinary least square) model and an alternative proxy of governance i.e. EFI (economic freedom index) to validate the findings. The analysis reveals that governance exerts a significant and positive effect on PPE. Specifically, the dimensions of governance such as corruption control (COC), government effectiveness, political stability (POS), regulatory quality, etc. demonstrate robust positive associations with PPE. This positive relationship indicates that stronger governance institutions foster transparency, efficiency, and stability in the energy sector, attracting private-sector investments. The findings of this study have significant policy implications for policymakers, investors, and stakeholders seeking to promote sustainable energy transitions and socio-economic development within the ASEAN region. Specifically, it is essential to strengthen governance institutions, enhance regulatory frameworks, and foster public-private partnerships for energy investment. This study contributes to the existing literature by providing novel insights into the governance-energy investment nexus within the ASEAN region.

Fantasy of success, fear of failure and entrepreneurial choice: the moderating role of business vibrancy and failure experience

PurposeThis study investigates the impact of internal expectations, such as fantasy of success and fear of failure and external factors, such as social environment and past experiences, on entrepreneurial choice.Design/methodology/approachBased on achievement motivation and social cognitive theories, the authors construct hypotheses and use secondary data from the Global Entrepreneurship Monitor (GEM) database and Economic Freedom Index report to empirically test the hypotheses. The authors also use propensity score matching to solve the endogeneity issue and test the robustness.FindingsInternal expectations (fantasy of success and fear of failure) on business outcomes inversely affect entrepreneurial choices, with a vibrant business environment amplifying and past failure experience mitigating these effects.Originality/valueDue to the economic recession, governments encourage small businesses. Thus, the complexity of individual entrepreneurial motivations and influencing factors necessitate deeper exploration. This study is one of the first research offering insights into entrepreneurial motivations from combined dimensions and providing theoretical support for strategies promoting public entrepreneurship.

How China can promote the outer circular economy under policy uncertainty

This paper utilizes the trade gravity model under the “double-cycle” pattern and selects the trade and export panel data of China in general and 31 provinces and cities located on mainland China specifically to the U.S. from 2008 to 2022 to analyze not only the reasons for the emergence of trade friction shocks between China and the U.S. but also the effects of trade friction shocks on trade between China and the U.S. and the characteristics of each market's export potential. The results of the study reveal that the volume of China's secondary industry GDP and the U.S. economic freedom index play a positive role in promoting China‒U.S. trade, while the volume of the U.S. GDP, the U.S. population, the trade distance between China and the U.S., and the number of U.S.‒China trade barrier notifications impede China‒U.S. trade. Furthermore, on the basis of the measurement of the trade potential equation, the provinces and municipalities of China's mainland are classified into the U.S. trade and export markets, and ways and means are sought to improve the potential of China's trade and exports with the U.S. Moreover, on the basis of the trade potential equation, China in general and the mainland provinces and cities specifically are divided into export markets to the U.S. to find ways to increase China's trade and export potential to the U.S. and promote China's “outward circulation” economy.

Public Expenditure in the Fastest Growing and Emerging Market Economies in Africa: The Role of Institutional Quality

Emerging and fastest-growing markets in Africa are developing their financial environment to attract investors and position themselves as an upcoming generation of strong and influential markets. The subject of this study is public expenditure outlays used to stimulate economic activity in emerging markets in Africa. The purpose of this study is to isolate the main determinants of government spending and the role of institutional quality. The relevance lies in the significance of maintaining such expenditures at optimal levels to benefit the economy. The scientific novelty lies in the analysis of the main factors explaining government spending to support policy formulation in emerging markets. This study applied the autoregressive distributed lag (ARDL) model to test both long-term and short-term dynamics. Based on the results, the study demonstrated both joint and long-run causality between the selected variables and government expenditure. Short-term causality is not confirmed. The study concluded that the Wagner law still holds, in which economic growth is coupled with an increase in expenditure. The Economic freedom index is more effective in controlling government expenditure than the POLITY 2 variable. This study offers some policy implications.

Government size, institutional quality and economic welfare in Africa

PurposeMost African countries operate large government sizes but with little corresponding economic outcomes. Institutional economics however, show that strong institution is fundamental in promoting economic growth. This study examines the linkages between government size, institutional quality and economic welfare in Africa.Design/methodology/approachThis study deploys the System Generalized Method of Moments estimation strategy on panel data of 52 African economies from 2000–2018.FindingsThe result shows that government size has a negative impact on economic welfare, while institutional quality has a positive impact on economic welfare. The interaction of government size and institutional quality shows a positive impact on economic welfare, signifying synergy and complementarity. Thus, strong institutions counteract the adverse effects of large government size on economic welfare.Practical implicationsTo promote human development and economic welfare, and attain key Sustainable Development Goals such as good health and well-being, quality education, decent work and economic growth, African policy makers need to keep their government sizes at optimal levels and promote strong institutions.Originality/valueThis paper provides first-hand empirical evidence of the relevance of institutional quality in counteracting the adverse influence of large government size in Africa. It determines the thresholds of government size and uses a composite index as proxy for same. In addition, this study uses the World Governance Indicators and the Fraser Institute Economic Freedom Index as alternative measures of institutional quality and Gross Domestic Product per capita and Human Development Index as proxies for economic welfare.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-01-2024-0075

Revisiting the relationship between economic freedom and development to account for statistical deception by autocratic regimes

The literature connecting economic freedom indexes to income levels and growth generally points in the direction of a positive association. In this paper, we argue that this finding is a conservative one as the data is biased against finding any effects. The bias emerges as a result of the tendency of dictatorial regimes to overstate their GDP level. Dictatorships also tend to have lower scores of economic freedom. This downwardly biases any estimations of the relation between income and economic freedom. In this paper, we use recent corrections to GDP numbers – based on nighttime light intensity – to estimate the bias. We find that the true effects of economic freedom on income levels are between 1.1 and 1.62 times greater than commonly estimated. For economic growth, the bias is far smaller. Finally, we find suggestive evidence that the relationship between changes in economic freedom and economic growth is being underestimated as a result of the lies of dictators regarding GDP.

Role of Innovation on Green Economic Growth: Empirical Analysis from the Countries of the Western Balkans

The impact of innovations on the growth of the green economy is a crucial aspect for a country’s economy. The promotion of these innovations and investments is also vital for sustainable and long-term development. This paper aims to present the role of innovation on green economic growth in the countries of the Western Balkans (Kosovo, Albania, North Macedonia, Montenegro, Bosnia and Herzegovina and Serbia) over a 13-year period, from 2010 to 2022.Data for the research were obtained from the World Bank and the Global Economy Database, where the study data type is Panel. The econometric models used are: the ordinary least squares (OLS) model, the Fixed Effect (FE) model, the Random Effect (RE) model and the Hausman Taylor (HTH) model. The dependent variable is green economic growth, while the independent variables include the innovation index (INV), research and development expenditures (R&D), information technology exports (ITE), patent applications from residents (PA), manufacturing output (MAN), business freedom index (BFI), investment freedom index (IFI), and economic freedom index (EFI). The findings of this paper show that the countries of the Western Balkans should promote key factors such as: innovation as an important driver, with a positive impact on green economic growth; research and development expenses; patent applications, and favorable business and economic environments to facilitate long-term green economic growth and promote environmental sustainability. The results indicate that the coefficient for innovation is positive (B=0.41) and statistically significant at the 1% level, supporting the hypothesis that the increase in innovation has a positive impact on green economic growth in the countries of the Western Balkans.

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.

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.

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 implications of economic freedom and gender ideologies on women's opportunity-to-necessity entrepreneurship

PurposeThis study explores the relationship between economic freedom and gender ideologies on the allocation of women’s opportunity-to-necessity entrepreneurship across countries. Opportunity entrepreneurship is typically understood as one’s best option for work, whereas necessity entrepreneurship describes the choice as driven by no better option for work. Specifically, we examine how economic freedom (i.e. each country’s policies that facilitate voluntary exchange) and gender ideologies (i.e. each country’s propensity for gendered separate spheres) affect the distribution of women’s opportunity-to-necessity entrepreneurship across countries.Design/methodology/approachWe construct our sample by matching data from the following country-level sources: the Global Entrepreneurship Monitor’s Adult Population Survey (APS), the Fraser Institute’s Economic Freedom Index (EFI), the European/World Value Survey’s Integrated Values Survey (IVS) gender equality index, and other covariates from the IVS, Varieties of Democracy (V-dem) World Bank (WB) databases. Our final sample consists of 729 observations from 109 countries between 2006 and 2018. Entrepreneurial activity motivations are measured by the ratio of the percentage of women’s opportunity-driven total nascent and early-stage entrepreneurship to the percentage of female necessity-driven total nascent and early-stage entrepreneurship at the country level. Due to a first-order autoregressive process and heteroskedastic cross-sectional dependence in our panel, we estimate a fixed-effect regression with robust standard errors clustered by country.FindingsAfter controlling for multiple macro-level factors, we find two interesting findings. First, economic freedom positively affects the ratio of women’s opportunity-to-necessity entrepreneurship. We find that the size of government, sound money, and business and credit regulations play the most important role in shaping the distribution of contextual motivations over time and between countries. However, this effect appears to benefit efficiency and innovation economies more than factor economies in our sub-sample analysis. Second, gender ideologies of political equality positively affect the ratio of women’s opportunity-to-necessity entrepreneurship, and this effect is most pronounced for efficiency economies.Originality/valueThis study offers one critical contribution to the entrepreneurship literature by demonstrating how economic freedom and gender ideologies shape the distribution of contextual motivation for women’s entrepreneurship cross-culturally. We answer calls to better understand the variation within women’s entrepreneurship instead of comparing women’s and men’s entrepreneurial activity. As a result, our study sheds light on how structural aspects of societies shape the allocation of women’s entrepreneurial motivations through their institutional arrangements.

Economic freedom and foreign direct investment in Brazil: an empirical analysis of determinants and policy implications

PurposeThis paper aims to study the impact of economic freedom and some key macroeconomic variables on the foreign direct investment (FDI) inflow in Brazil.Design/methodology/approachAn econometric model is developed that includes FDI inflow as the dependent variable and macroeconomic variables such as the output, current account balance, the real exchange rate, openness and economic freedom as explanatory variables. Annual time series data from 1995 to 2022 is used. Before carrying out the estimation, the time series properties of the data are diagnosed using unit root tests and cointegration tests. Since the data series were found to be stationary in the first difference form and the variables in the model were cointegrated, an error correction model is developed and estimated.FindingsThe findings demonstrate that the size of the market (gross domestic product), current account balance and the economic freedom index significantly influence FDI inflow to Brazil. Although the signs of openness and the real exchange rate align with theoretical expectations, they do not attain statistical significance.Originality/valueTo the best of the authors’ knowledge, this is the first formal study on the impact of economic freedom on the FDI inflow in Brazil. The finding of this study adds value to the understanding of FDI dynamics in Brazil, highlighting the critical role of economic freedom and market size in attracting foreign investment.

Ranking of Countries according to the Index of Economic Freedom with Multicriteria Decision making Methods

Every investor wants to conduct their economic or commercial activity in a country with ease. Economic freedom refers to the public limitations that individual or institutional investors must abide by in order to conduct their business. Individual or institutional investors have the chance to produce, consume, and invest more in nations with high levels of economic freedom. If a nation has a high level of economic freedom, it means that institutions and norms are founded and that the economy runs under free market circumstances. Individual or institutional investors are protected and their legal rights are upheld by the public authorities. In this study, the level of tariffs in the country, the presence of restrictions on foreign investments and capital, the black market situation, the taxation system in the country, the presence and importance of the public sector in the economy, the inflation in the country, the country's inflation, and the country's level of tariffs are all taken into account on a country-by-country basis. The study was conducted by the Heritage Foundation, which has its headquarters in the United States since 1996. Independence of the banking and financial sectors, controls on the prices of products and services and employee wages, regulation and regulation, investor property rights, etc. The data of the "Economic Freedom Index", which consists of fourteen basic criteria including all stages, were examined. This index consists of ten and includes these criteria. With this study, entropy-weighted multi-qualified benefit for the criteria and weights determined in the index calculated by the Heritage Foundation. It aims to provide a fresh option by ranking the "Economic Freedom Index" for all the study's participating nations using the MAUT approach. Keywords: multi-criteria decision making, economic freedom index, entropy, MAUT

SOCIAL RESPONSIBILITY OF GREEN MICROFINANCE INSTITUTIONS: A TOOL FOR PROMOTING WOMEN’S ECONOMIC EMPOWERMENT IN CHINA

Economic freedom has central importance among the nations, however, Chinese economic freedom index declining continuously, leading to the several issues. Particularly, economic freedom is low among the Chinese female population. The world average of economic freedom index in 2022 based on 175 countries is 60 index points, but the Chinese index is 48. To address this issue, this study introduced green microfinance institutions based on Mayoux’s Feminist Empowerment Theory. The objective of this study is to examine the role of green microfinance institutions in women economic freedom in China. A survey questionnaire is used to collect data from female clients of microfinance institutions. 315 respondents responded to the survey and data analysis is carried out by using Structural Equation Modeling (SEM). Results of the study identified that, green microfinance institution’s services such as credit and insurance can facilitate green micro enterprises. The promotion of green micro enterprises causes to increase women economic security, leading to the economic freedom. Additionally, green microfinance policy is a critical factor to promote the positive relationship between green microfinance institution’s services and women economic freedom. Findings of this are helpful for the practitioners to increase women economic freedom in China by providing various services of green microfinance institutions.

ESG Performance in Emerging Economies

Business sustainability has been assessed by combining the financial (governance) and non-financial (environmental and social) performance of companies. This assessment must consider the institutional characteristics of the countries. Brazil, Russia, India, China, and South Africa (BRICS) are emerging economies, i.e., in economic and social transition. The aim of this study is to identify the factors that affect ESG performance and each of its pillars of companies located in these emerging markets. This objective was developed by means of panel data regression with fixed effects controlled by year and economic sector, over the period 2016 to 2022, obtaining 6,278 observations of companies located in the BRICS. The main results show that a country’s higher level of transparency (absence of corruption) increases performance in the environmental and social dimensions; while the Index of Economic Freedom is associated with the governance dimension; in the characteristics at the company level, voluntary adherence to the Global Compact stands out, and large companies show better ESG performance compared to medium and small companies. These results have empirical implications at the country level (policies and legislation) and at the company level (headquarters country and size differences). The main contribution indicates that different factors affect the ESG performance of BRICS countries and of companies located in these countries. This contribution fills a gap in the literature and empirical evidence on ESG in companies from emerging markets.

Evaluating and Improving the Metropolitan Economic Freedom Index

AbstractThe Metropolitan Economic Freedom Index (MEFI) ranks cities based on their support of free market enterprise. In its current state, MEFI purports to measure three constructs (government spending, taxation, and labor market freedom) with three equally weighted variables for each one, assuming perfect substitutability of variables. This study investigates the statistical consistency of MEFI through Confirmatory Factor Analysis. Multiple models investigate current variable selection by providing a potentially better indicator of labor market freedom, aggregation assumptions by removing the requirements for fixed and equal weights, and statistical consistency by evaluating the fit between the data and models. Results indicate that the current MEFI model is not statistically consistent with the data, that weighting of variables should not be equal, that variable selection should be investigated, and that constructs should be re-imagined. The models investigated provide an initial starting point for redefining MEFI.

The relationship between economic freedom and growth: Evidence from the Next Eleven (N-11) countries

This study examines the association between economic freedom and economic growth in the Next Eleven (N-11) economies from 2001 to 2020. This paper also links the individual areas of economic freedom with growth in these countries. The study obtains economic freedom data from the Fraser Institute and the Heritage Foundation. It uses fixed effects and random effects techniques to examine the relationship between economic freedom and per capita income growth. The paper finds a positive association between economic freedom and growth in N-11 countries. The results also highlight that three areas of the economic freedom index (legal system & property rights, sound money, and free trade) are found to be positively associated with growth. In contrast, the other two areas (size of government and regulation) exhibit an insignificant relationship with growth. The results of this study highlight that N-11 countries with higher levels of economic freedom and better quality of economic institutions are likely to witness higher growth. Therefore, formulating policies that focus on improving the legal system, safeguarding property rights, maintaining a stable macroeconomic environment, and fostering free trade to facilitate economic progress in the N-11 countries is necessary.

The role of individual and contextual economic factors in obesity among adolescents: A cross-sectional study including 143 160 participants from 41 countries.

To our knowledge, no previous study has examined the role of index of economic freedom (IEF) in the prevalence of excess weight and obesity in adolescents. The aim of this study was to determine the association between both individual and contextual economic factors and the prevalence of overweight and obesity (i.e. excess weight) or obesity in adolescents from different countries. A cross-sectional study was carried out using data from the 2017/2018 wave of the Health Behaviour School-Aged Children study. Body mass index z-score was determined following the International Obesity Task Force criteria and, subsequently, excess weight and obesity were computed. The Family Affluence Scale was used to assess socioeconomic status. The index of IEF was used to estimate the benefits of economic freedom, both for individuals and for society as a whole. An inverse association was shown between socioeconomic status (SES) and excess weight or obesity, with adolescents with high SES and medium SES being less likely to have excess weight compared to adolescents with low SES (medium SES: odds ratio (OR) = 0.79; 95% confidence interval (CI) = 0.77-0.82, P < 0.001; high SES: OR = 0.65; 95% CI = 0.62-0.68, P < 0.001). For obesity, lower odds were also found for adolescents with medium SES (medium SES: OR = 0.74; 95% CI = 0.69-0.80, P < 0.001) or high SES (high SES: OR = 0.55; 95% CI 0.49-0.61, P < 0.001), in comparison with their counterparts with low SES. On the other hand, it was observed a greater likelihood of having excess weight and obesity in mostly unfree countries (excess weight: OR = 0.72; 95% CI = 0.51-1.00, P = 0.052; obesity: OR = 0.60; 95% CI = 0.39-0.92, P = 0.019) compared to free/mostly free countries. These results remained significant after adjusting for several sociodemographic and lifestyle covariates. Both individual and contextual factors seem to have a crucial role in the prevalence of excess weight and obesity in adolescents.

GREEN INVESTMENT, ENERGY EFFICIENCY, AND ECONOMIC GROWTH: DOES ECONOMIC FREEDOM MATTER? EVIDENCE FROM BRICS COUNTRIES

Sustainable development goals, particularly number 7, clearly urges economies over the globe to multiple their efforts in order to improve efficiency. Although witnesses stressed out the importance of energy efficiency and claimed that when it is improved drastically, it triggers economic growth, however, the reported evidences to support the claim are mixed. In BRICS scenario, economies are experiencing the change from high-speed growth to high quality growth, due to which it is equally important to look into green investment as it is an essential tool to build high quality economic growth. Although green investment targets energy conservation as well as ecological deficit as it main goal. However, limited literature claims that it affects economic growth as well. Thus, the present study aims to assess green investment, energy efficiency, and economic growth (EG) and their impact on economic freedom index of the BRICS countries. Methods of Moments-Quantile-Regression (MMQR) approach is applied to explore the association between the understudy constructs in the time span of 2001–2020. Interestingly, it is revealed that green investment, energy efficiency and renewable energy are positively related with economic freedom index of the BRICS countries. With the evidences, the study proposes a conclusive remark to spur development across the countries.