Ekonomisk frihet och nationers välstånd

This bachelor thesis examines the relation between countries’ degree of economic freedom and their economic performance. Economic freedom as a concept is defined as the degree of market economy within a nation. The variable of measure that is used is the Frasier institute Economic freedom of the world index (EFI). The paper is built upon the Solow growth model and is extended by incorporation of additional variables; among which of course economic freedom. The study is performed through regression analysis, based on the neoclassical model both on rich countries, poor countries and on all investigated countries. Two investigations are performed: i) the impact from economic freedom on countries level of GDP per capita and ii) the impact from economic freedom on the growth rate in GDP per capita. The finding is that economic freedom can be seen as a relevant determinant of differences in GDP per capita growth rates between nations. Hence it can assist in explaining why some countries grow faster then others. The degree of economic freedom is conversely not of importance in explaining differences in GDP levels between rich and poor countries. When the countries are divided into two groups, based on their GDP levels, differences emerge. Between different rich countries, economic freedom is a significant factor for explaining both variations in GDP levels and growth rates. Poor countries’ economic performance is however not successfully determined by their degree of economic freedom, not at all in GDP levels, and very weakly in growth rates. Increments in economic freedom seem to have increasing marginal effects on GDP levels and growth rates. Poor countries that tend to have low degree of economic freedom will therefore not be benefited from increments in economic freedom the same way as rich and developed countries will be