Economic freedom and democracy: determinant factors in increasing macroeconomic stability

Abstract

The main goal of the article is to analyze the role and influence of economic freedom on macroeconomic stability. For this purpose, the authors used the integrated index of economic freedom, calculated by the Heritage Foundation and Democracy Index. It is noted that this index indicator was calculated by the experts from the World Bank using the index of voice and accountability. In the paper, the authors used the multinational panel dataset for 11 countries of the EU for the purpose of checking the correlation between economic freedom, democracy and macroeconomic stability. It should be highlighted that the abovementioned 11 countries are related by the fluctuation of economic growth during the transformation process (1996–2016) from communist party to the democracy and political pluralism. In addition, the authors proposed to add the indicators of political stability and trade openness, which allowed to take into account implementation of flexible macroeconomic instruments, including monetary policy, which towards increasing the economic growth, employment and financial development of the countries. The findings are directed received using the regression equation with fixed and random effects showed the high level of correspondence of the model used with the original observations. Despite the chosen approach to estimate the macroeconomic stability, the findings showed that there is a positive and statistically significant impact of economic freedom and democracy on macroeconomic stability.

Institutional complementarity for social and economic development

“…The political and economic institutions' dependence is confirmed by studies of (Bartlett et al 2013, Yevdokimov et al 2018. The political institutions, particularly political stability, governmental accountability, responsibility chains, freedom of mass media and fighting corruption are important for configuration and functioning of the key economic institutions.…”

Institutional development gap in the social sector: Cross-country analysis

“…In the study of the local convergence, the methodology of a quantitative assessment of the regional development sustainability based on multicriteria assessment methods, proposed by Ginevicius, R. (2019), attracted attention. Yevdokimov et al, (2018) analyzed basic institutions -economic freedom and democracy as determinant factors in increasing macroeconomic stability. Bilan et al, (2018a,b), Sokolenko et al, (2018), Grenčíková et al, (2019), Kolosok and Myroshnychenko, (2015), , Mentel et al, (2018), Bilan et al, (2019a), Vasilyeva et al, (2014) represented institutions as a factor of macroeconomic stability, business cycle dynamics and sustainable economic development in developing countries and transition economies.…”

Social trust and institutional (bank) trust: Empirical evidence of interaction

“…Sønderskov and Dinesen (2016) in their paper confirmed strong impact of institutional trust on social trust and the latter is likely to change over time under the influence of the institutions. The authors in the papers (Balas et al, 2019;Abaas et al, 2018;Yevdokimov et al, 2018) proved the linking between economic growth, economic freedom, macroeconomic stability and level of trust among society to the institutions in the country.…”