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How Do Economic Freedom and Investment Affect Economic Growth?

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  • KIMLONG CHHENG

    (Kobe University, Graduate School of International Cooperation Studies)

Abstract

This paper studies whether and how capital investment and economic freedom jointly endogenize economic growth. The results produced by White’s heteroscedasticity-consistent matrix tests on a panel data of 50 countries over 1981-2000 support the crucial role of both domestic and foreign capital investment and economic freedom for rapid growth. Countries that improve economic freedom and that bolster capital investment tend to experience faster growth. The domestic investment rate _the breakdown of public and private investment_ and foreign direct investment are positively associated with economic growth, while the initial real per capita GDP is negatively correlated with subsequent growth rate.

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File URL: http://128.118.178.162/eps/mac/papers/0509/0509021.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0509021.

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Length: 10 pages
Date of creation: 13 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0509021

Note: Type of Document - pdf; pages: 10
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Web page: http://128.118.178.162

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Keywords: Economic freedom; investment; growth;

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  1. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  2. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," NBER Working Papers 10568, National Bureau of Economic Research, Inc.
  3. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
  4. Barro, Robert J, 1996. " Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
  5. J. Bradford De Long & Lawrence H. Summers, 1990. "Equipment Investment and Economic Growth," NBER Working Papers 3515, National Bureau of Economic Research, Inc.
  6. Carlsson, Fredrik & Lundström, Susanna, 2001. "Economic Freedom and Growth:Decomposing the Effects," Working Papers in Economics 33, University of Gothenburg, Department of Economics.
  7. Jac C. Heckelman, 2000. "Economic Freedom and Economic Growth: A Short-run Causal Investigation," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 71-91, May.
  8. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 133-162, January.
  9. John W. Dawson, 2001. "Causality in the Freedom-Growth Relationship," Working Papers 01-04, Department of Economics, Appalachian State University.
  10. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
  11. Minier, Jenny A, 1998. " Democracy and Growth: Alternative Approaches," Journal of Economic Growth, Springer, vol. 3(3), pages 241-66, September.
  12. Jan-Egbert Sturm & Jakob De Haan, 2001. "How robust is the relationship between economic freedom and economic growth?," Applied Economics, Taylor & Francis Journals, vol. 33(7), pages 839-844.
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Cited by:
  1. Jan HANOUSEK & Evžen KOČENDA, 2010. "Public investment and fiscal performance in new EU member states," Departmental Working Papers 2010-07, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  2. Jan Hanousek & Evžen Kočenda, 2011. "Public Investment and Fiscal Performance in the New EU Member States," Fiscal Studies, Institute for Fiscal Studies, vol. 32(1), pages 43-71, 03.
  3. Vatcharin Sirimaneetham, 2006. "What drives liberal policies in developing countries?," Bristol Economics Discussion Papers 06/587, Department of Economics, University of Bristol, UK.

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