Does economic freedom promote financial development? Evidence from EU countries

Abstract

This study empirically investigates the relationship between economic freedom and financial development in EU countries. Using panel data covering the years 2000–2017 and employing fixed effects, random effects, and the generalised method of moments (GMM), the paper examines the effect of economic freedom on financial development. The research results demonstrate that greater economic freedom is conducive to financial development in the EU. These findings remain robust to the use of an alternative index of economic freedom. The results imply that policies which promote economic freedom are likely to raise the level of a country’s financial development.