Economic freedom and effects on economic growth: A time series analysis for Turkey

The relationship between economic development and resource allocationmechanism is one of the mostly debated issues in economic theory. While the argumentthat free market economy promotes economic growth has been accepted in theory, but theempirical tests have produced various results.For that reason, beginning with the hypothesis; ?There is a positive relationbetween economic freedom and economic growth?,in this study, the relationship betweeneconomic freedom and economic growth is analyzed by econometric methods using variousindicators classified in six groups for the period 1970 ? 2006.ARDL Bound Tests and Johansen Cointegration methods are employed in empiricalanalyses. As the existing studies consist of mostly cross sectional or panel data analyses,economic freedom index and the time series analyses in this thesis are expected to provideconsiderable contribution to the related literature.In an extended Solow growth model, reel GDP per capita is used as the dependentvariable, while per capita net capital stock, human capital and economic freedom index areexplanatory variables.The results of the analyses indicate that there is a cointegrating relationship betweenfreedom and growth and that liberalization attempts recorded especially in the last ten yearshave contributed economic freedom and thus economic growth.KEYWORDS: Economic freedom, economic growth, Turkish economic freedom index,ARDL Bound Test Approach, Johansen Cointegration Analysis.Created