Academic journal article European Journal of Sustainable Development

Modelling Economic Growth Based on Economic Freedom and Social Progress

Academic journal article European Journal of Sustainable Development

Modelling Economic Growth Based on Economic Freedom and Social Progress

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1.Introduction

In liberal tradition, since Adam Smith, economic freedom has proven to be the best path to prosperity. It is the key issue for all countries, but in order to consider it a progress it has to be accompanied by a general social and spiritual progress. Economic growth stands for the real increase, in a certain period of time and within a certain space, of an aggregate economic indicator such as GDP.

Economic growth highlights those changes occurring in the increase of the macroeconomic results expressed not independently, but in close connection with its determinants. A wide range of both theoretical and empirical studies points out to a great variety of determinants of this process: investment, accumulation of physical capital, human capital, innovation, geography, political and legal institutions, macroeconomic conditions etc. are all considered to play a role in enhancing economic performance (Bassanini and Scarpetta, 2001; Petrakos and Arvanitidis, 2008; Moral-Benito, 2009).

Out of the numerous explanatory variables presented in literature as determinants of economic growth, our paper considers economicfreedom and socialprogress.

Knowing the economic environment of a country requires knowledge of the degree of freedom of the respective economy. The higher the degree of economic freedom, the more successfully a company can implement any strategy and marketing policy in that market (Mu^etescu, 2012).

There have been many attempts to quantify the degree of economic freedom. A heterogeneous range of indicators which aim at quantifying economic freedom has been developed (for example, Economic Freedom of the World from Fraser Institute, Index of Economic Freedom released by Heritage Foundation & Wall Street Journal, World Survey of Economic Freedom from Freedom House). They share several similarities since most of them include in their methodology the core elements of economic freedom: secure private property rights, rule of law, freedom of trade, limited government (Iacobutä and Gagea, 2010).

In this paper economic freedom is analysed using the Index of Economic Freedom from Heritage Foundation & Wall Street Journal. It is an aggregate indicator, determined as the mean of the scores for each of its 10 components. The components of the indicator are grouped into 4 categories, namely Rule of law, Limited government, Regulatory efficiency and Open markets (Heritage Foundation, 2016). According to the index methodology, for each of the 10 components, a country receives a score which ranges from 0 to 100. The higher the score is, the higher the degree of freedom included in that component.

Socialprogress is the ability of a society to meet the basic human needs of its members, to create institutions that enable individuals and communities to increase and maintain their quality of life and create favourable conditions for individuals to be able to reach their full potential. Social progress is measured by Social Progress Index released by Social Progress Imperative. It is calculated as the mean of the scores for three dimensions: Basic Human Needs, Foundations of Wellbeing and Opportunity. Each of these dimensions is disaggregated into components which capture the multifaceted concept of social progress (Social Progress Imperative, 2013). Thus, the first dimension captures, in four components (Nutrition and basic medical care, Air, water, and sanitation, Shelter and Personal safety), the degree to which the most essential conditions for survival are met. The Foundations of Wellbeing dimension consists of four components which measure whether citizens have access to basic education, can access information both within the country and outside, and if they have conditions that ensure a healthy life. This area also takes into consideration the protection of the environment. The third dimension - Opportunity - is also divided into four components (Personal rights, Access to higher education, Personal freedom and choice and Equity and inclusion) which capture citizens' rights and freedoms and their ability to act according to their own decisions. …

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