Economic freedom and productivity change in developed and developing countries

Economic freedom has been shown to have a strong connection to economic growth. Two channels have been suggested through which economic freedom influences growth: the investment channel and the total factor productivity (TFP) channel. This study explores the TFP channel by examining the effect economic freedom and other potentially significant variables have on productivity change and its component parts: efficiency change and technical change.; After surveying the economic freedom literature in Chapter 1, Chapter 2 offers a theoretical basis for choosing inputs on which productivity measures are based. An argument is made against the human capital concept. Embodied technological and efficiency elements are removed from the input measures. Productivity, efficiency, and technical change measures are then constructed using a Malmquist productivity index in the first stage of a two-stage approach.; In the second stage, productivity measures are regressed on economic freedom and other explanatory variables for forty-six developed and developing countries as a whole group and as subsets of twenty-one developed countries and twenty-five less-developed countries. Pooled least squares regression results are presented for several model specifications.; The level of economic freedom is associated with productivity growth through improvement in efficiency. Change in economic freedom is associated with productivity growth through technical change. Political rights are associated with increased productivity in developed countries through improved efficiency. In developing countries, political rights are found to be associated with reduced efficiency and higher technical change, which offset each other.; Interaction between investment and economic freedom appeared strong, but only when country subgroups were used. Interaction was different for each subgroup. Results weakly support the existence of convergence in efficiency, divergence in technological performance, and an overall convergence in productivity levels.