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How Do Economic Freedom and Investment Affect Economic Growth?


    (Kobe University, Graduate School of International Cooperation Studies)

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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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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  1. J. Bradford De Long & Lawrence H. Summers, 1990. "Equipment Investment and Economic Growth," NBER Working Papers 3515, National Bureau of Economic Research, Inc.
  2. 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.
  3. Dawson, John W., 2003. "Causality in the freedom-growth relationship," European Journal of Political Economy, Elsevier, vol. 19(3), pages 479-495, September.
  4. 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.
  5. Carlsson, Fredrik & Lundström, Susanna, 2001. "Economic Freedom and Growth:Decomposing the Effects," Working Papers in Economics 33, University of Gothenburg, Department of Economics.
  6. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 133-162, January.
  7. Sadequl Islam, 1996. "Economic freedom, per capita income and economic growth," Applied Economics Letters, Taylor & Francis Journals, vol. 3(9), pages 595-597.
  8. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, 09.
  9. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
  10. Barro, Robert J, 1996. " Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
  11. Minier, Jenny A, 1998. " Democracy and Growth: Alternative Approaches," Journal of Economic Growth, Springer, vol. 3(3), pages 241-66, September.
  12. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  13. 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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