ECONOMIC FREEDOM AND ECONOMIC WELL-BEING: A GRANGER CAUSALITY ANALYSIS OF 49 COUNTRIES, 1995–2004

Most studies show that nations which have fewer restrictions on private agents and transactions tend to have higher levels of economic growth. However, it is less clear which of the disaggregated categories of economic freedom determine growth and whether or not growth granger causes economic freedom. The aim of this paper is to address the issue concerning the direction of causation between measures of economic freedom and economic growth. We employ a panel of countries from the Heritage Foundation data set and conclude that economic well-being granger causes the average level of freedom as well as some underlying components of economic freedom.Economic Freedom, Economic Growth, Panel Data, Granger Causality