The relationship of economic freedom and economic development: Application on new industrializing countries

Throughout the history of economics, the relationship between economic freedoms and economic development has been one of the main topics of discussion. Especially with the 1990s, the measurement of economic freedoms more concretely and broadly increases the empirical studies on the subject day by day. In this study, the relationship between economic freedoms and economic development was empirically tested in the sample of newly industrialized countries (NICs) consisting of Argentina, Brazil, China, Philippines, South Africa, India, Malaysia, Mexico, Thailand and Turkey. In the study, the human development index (HDI) representing development and the economic freedom index representing economic freedoms are discussed. In this context, firstly, the cross-sectional dependence and homogeneity of the variables were tested, and then the causality relationship between the two variables was examined using the Kónya (2006) causality test. As a result of the analyzes, it was revealed that there is unidirectional causality from HDI to IEF for South Africa, Mexico and Thailand countries, while there is bidirectional causality between HDI and IEF for India and Malaysia. For Argentina, Brazil, China, Philippines and Turkey, no causality relationship could be determined. In addition, according to the sub-index causality tests of IEF, different results were found in the context of countries and sub-indices. For example, one-way causality has been identified from trade freedom to HDI for Turkey, investment freedom to HDI for China, and tax burden to HDI for Philippines. Again, for Argentina and Brazil, one-way causality was found from the government integrity sub-index to the HDI.