The effect of economic freedom on macroeconomic performance: An empirical investigation on selected country groups

Economic freedoms are an important fact of liberal economic thought within the market economy model. The importance of this understanding stems from the view that it positively affects the variables used in the measurement of macroeconomic performance, which are accepted as the ultimate goals of economic policy, such as economic growth and price stability. The aim of this study is to provide evidence on whether a liberal economy approach has a significant effect on selected country groups. For this purpose, two different models were generated within the scope of the study. In Model I, it is aimed to examine the effect of economic freedoms on GDP per capita for selected country groups (All countries group, developed countries group, developing countries group, 10 most economically free countries group and Fragile Five country group). In Model II, it is aimed to examine the effect of economic freedoms on the consumer price index for the same country groups. According to the results of the analysis made using Panel data analysis for the years 2005-2020, the findings reveal that economic freedoms have a positive effect on economic growth, but they do not show the expected effect on price stability. These results confirm the statement "Inflation is a monetary phenomenon every time and everywhere" as monetarist theory suggests, and reveal the necessity of fighting with tight monetary and fiscal policies, rather than regulations that expand economic freedoms, in the fight against inflation. This situation reveals that policy makers should give priority to price stability in order to reach the ultimate goal such as economic growth and price stability. As stated in theory and in the literature, it is important to reach the price stability target first for a sustainable growth path.