In this repository, you will find all the code and files I used for my bachelor thesis.
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Figures: includes all the figures created, plus some extra data from the CCEMG model and a notebook used to create figures from the CCEMG model data.
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Data & Code:
- Code: includes a combination of the cleaned data and the notebooks used to actually estimate the econometric models and perform all the relevant diagnostic tests.
- Full datasets: includes the raw datasets as they were downloaded from their respective sources.
- filtered_data: includes the datasets after initial stages of wrangling and cleaning.
This thesis examines the relationship between economic freedom and economic growth in the European Economic Area (EEA) from 2000 to 2019. The study focuses on four components of The Heritage Foundation’s Index of Economic Freedom (IEF): Rule of Law (RL), Government Size (GS), Regulatory Efficiency (RE), and Market Openness (MO). Using the Common Correlated Effects Mean Groups (CCEMG) estimation technique with Driscoll-Kraay robust standard errors, the analysis finds that all components significantly impact GDP growth. RL and RE are negatively associated with growth, while GS and MO are positively correlated. Additionally, increases in capital and labor stocks significantly enhance growth, with capital having a stronger effect.
The findings challenge the blanket advocacy for libertarian policies by The Heritage Foundation and the Fraser Institute. The relationship between economic freedom and growth is complex, with some measures potentially hindering growth. This highlights the importance of considering external factors and the diminishing returns of economic freedom measures beyond certain thresholds.
In the context of a global shift from globalization to fragmentation, EEA members need to adopt new growth models to sustain economic growth. Economic fragmentation typically reduces trade and capital movement, but the EEA can achieve higher growth rates through deeper integration. Future expansions must carefully consider new members’ effects on current policies. The study underscores the need for a balanced policy approach, avoiding overly large public sectors and broad protectionist measures. A flexible regulatory approach is crucial for adapting to changes and ensuring sustained growth within the EEA.