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Institutions and policies of economic freedom: different effects on income and growth

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  • Judit Kapás

    (University of Debrecen)

  • Pál Czeglédi

    (University of Debrecen)

Abstract

The aim of this paper is to provide some additional results concerning how economic freedom enhances growth and/or long-run income. Our hypothesis is that institutions and policies of economic freedom may have different effects on long-run income and growth, both in terms of their size and working mechanisms. To test our hypothesis, we apply both Acemoglu et al.’s (Am Econ Rev 91(5):1369–401, 2001) and Mankiw et al.’s (Q J Econ 107(2):407–437, 1992) modeling strategies in our cross-country regression analyses. The major finding is that the institutions of economic freedom are of primary importance in economic development: they matter both in the long run and during the catching up period, and have both direct and indirect effects. On the other hand, the effects of economic freedom policies (monetary and fiscal) matter only during the catching up period, with the fiscal policy having a more straightforward effect. Furthermore, the estimates from the two modeling strategies are in line with each other, which can be seen as a further corroboration of our results.

Suggested Citation

  • Judit Kapás & Pál Czeglédi, 2017. "Institutions and policies of economic freedom: different effects on income and growth," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(2), pages 259-282, August.
  • Handle: RePEc:spr:epolit:v:34:y:2017:i:2:d:10.1007_s40888-017-0063-5
    DOI: 10.1007/s40888-017-0063-5
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    More about this item

    Keywords

    Economic freedom; Institutions; Economic policy; Growth; Long-run income;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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