Economic freedom and economic growth
Student name: Ms Garima Sodhi
Guide: Prof M.N. Murty
Year of completion: 2013
Host Organisation: Institute of Economic Growth, New Delhi
Abstract: For the past few decades the role of institutions as a determinant of economic growth has been
gaining importance in growth studies. Following the growth theories formed by Adam Smith,
several empirical examinations have been done to estimate the impact of economic freedom on
economic growth and per capita income. Those studies have indicated a positive and significant
relationship between the two. However, it has been observed that in the past decade countries
with low degree of economic freedom, especially China which is following market socialism has
shown a tremendous growth rate. This study examines the association between economic freedom
and per capita GDP in the augmented Solow growth model framework with recent data to verify
the role of economic freedom in explaining cross country income differences. The results show a
positive and highly significant relationship. Thus, economic freedom remains an important factor
in explaining income differences across nations.
