Fresh evidence on the investment-economic freedom-growth nexus in OECD member states

Abstract

This paper aims to explore the nexus between investment, economic freedom and economic growth in the sample of 35 OECD member states in the time span 1996-2015. The empirical methodology relies on the panel VAR model. The findings of trivariate model suggest a significant negative response of GFC to EFI. Investment is however found to respond positively to the improvements in real GDP per capita. With regard to GDP it is found to respond negatively to the GFC as well as EFI. Lastly, economic freedom is found to respond negatively to GFC but positively to GDP. IRFs displaythe response of EFI to GDP to be negative only in the short-run reaching the positive value at the end of the period of interest. Similar conclusion can be drawn for the response of EFI to GFC. GDP is found to have a positive response to the EFI in both, short- and the long-term. Similar conclusion can be drawn for the response of GDP to GFC. GFC positively responds to and to GDP. This paper suggests a necessity for policy makers to support the economic freedom since it has a great potential to contribute to the both, investments and final the economic growth of the countries of interest.