ECONOMIC FREEDOM, INFLATION RATE AND THEIR IMPACT ON ECONOMIC GROWTH: A PANEL DATA ANALYSIS

The relationship between economic freedom and economic growth has always been discussed and investigated in the economic literature. This study investigates both the relationship among economic freedom, inflation rate, economic growth and, separately, economic freedom indices, inflation rate and economic growth in 23 upper-middle income countries during 1995-2010. Pooled Least Squares and Two-way Panel Least Squares methods are used to estimate two different models. According to the results of these tests, economic freedom has a significantly positive effect, while inflation rate has a significantly negative effect on economic growth. When the components of economic freedom are examined separately, it was found that the coefficient of some components of economic freedom, such as government size index and business freedom index, were not significant variables. All other components of economic freedom are significantly related to economic growth.