Economic Freedom and the Process of Economic Growth: An Empirical Analysis Based on a New Measure

Abstract

IntroductionSince Adam Smith who explicitly raised the importance of system of natural liberty (in modern parlance economic freedom), the issue of economic freedom has been a subject of little interest among economists, except for Hayek (1960); but during the past decade the concept of economic freedom has attracted more attention. This is due to the emergence of indexes 1 ranking countries according to a scale running from the least free to the freest. The reason why more attention is paid to economic freedom is that various studies applying continually improving databases and constantly developing econometric techniques including two-stage regressions, extreme bound analysis, Granger-causality, (Smith 1776, Book Four, Chapter IX). See http://www. adamsmith.org/smith/won-b4-c9.htm. Accessed May 15, 2009 Judit Kapás is a professor and head of Department of Economics, Faculty of Economics and