Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 33: Economic Freedom and Growth:Decomposing the Effects

Fredrik Carlsson () and Susanna Lundström
Additional contact information
Fredrik Carlsson: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: , Box 640, SE 405 30 GÖTEBORG
Susanna Lundström: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG

Abstract: Most studies of the relation between economic freedom and growth of GDP have found a positive relation. One problem in this area is the choice of economic freedom measure. A single measure does notreflect the complex economic environment and a highly aggregated index makes it difficult to draw policy conclusions. In this paper we investigate what specific types of economic freedom measures that are important for growth. The robustness of the results is carefully analysed since the potential problem with multicollinearity is one of the negative effects of decomposing an index. The results show that economic freedom does matter for growth. This does not mean that increasing economic freedom, definedin general terms, is good for economic growth since some of the categories in the index are insignificant and some of the significant variables have negative effects.

Keywords: Economic growth; Economic freedom

JEL-codes: O10; O40

17 pages, February 2, 2001

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