CC BY
6The impact of the level of economic freedom on the socio-economic development of national economies: the Eurasian economic union countries
Sergei V. Shkiotov
Candidate of Economic Sciences, Associate Professor Yaroslavl State Technical University, Yaroslavl, Russia E-mail: shkiotov@yandex.ru
Abstract. The study assesses the impact of the level of economic freedom on the dynamics of socio-economic indicators of the four Eurasian Economic Union countries in the long time-span (2012-2021). This paper uses econometric modelling techniques to verify the hypothesis of existence of a direct statistically significant relationship between the level of economic freedom and Gross Domestic Product per capita, Gross Domestic Product itself, foreign direct investment in the economy, the Human Development Index; and an inverse relationship with the Corruption Perception Index. The study reveals the confirmation of a substantial part of the hypotheses put forward for economies of the Eurasian Economic Union countries. However, there is no statistically significant relationship between the level of economic freedom and Gross Domestic product capita or foreign direct investment in all of the economies studied.
Keywords: socio-economic development, Eurasian Economic Union (EAEU), economic freedom index, correlation analysis, The Heritage Foundation.
JEL codes: C12; dQ; О17
For citation: Shkiotov, S. V. (2022). The impact of the level of economic freedom on the socio-economic development of national economies: the Eurasian economic union countries .Journal of regional and international competitiveness, 3(2), 34. https://doi. org/10.52957/27821927_2022_2_34
DOI: 10.52957/27821927_2022_2_34
Introduction
The consensus in the economic literature concerns the economic freedom is a key factor in the development of a national economy.
Publishing its annual report on the state of economic freedom worldwide, The Heritage Foundation defines it as "the absence of government interference or obstruction in the production, distribution and consumption of goods and services, except for the protection and support of freedom as such that citizens need" (The Heritage Foundation, 2022).
In terms of the theoretical perspective, the relevance of economic freedom to the national economy is defined by a number of postulates:
- according to the Foundation's experts, there is a positive correlation between economic freedom and the success of economic development -- countries with a freer economy have much higher levels of well-being, and economic freedom brings relatively quick and tangible results in contrast to government regulation of the economy (The Heritage Foundation, 2022);
- there is also a direct correlation between the degree of regulation of the economy and the level of corruption (e.g. experience of India shows the corrupt officials, instead of trying to facilitate their duties, actually create administrative barriers to receive bribes) (Hellman et al., 2000);
- Economic Freedom Rating (The Heritage Foundation) is one ofthe indicators of a country's attractiveness to institutional investors in the global economy (reducing the economic functions of the state and transferring responsibility for economic decision-making to entrepreneurs generally results in a significant increasing of public prosperity. Countries with economic freedom policies provide positive conditions for trade and
© Sergei V. Shkiotov, 2022 34
entrepreneurship generating their own economic growth.
Moreover, applied works investigating the socio-economic aspects of economic freedom establish a correlation of this phenomenon with:
- Human Development Index (Staufer & Brockmann, 2018);
- level of corruption of the State (Malanski & Povoa, 2021);
- Gross Domestic Product (GDP) per capita (Cebula, Clark & Mixon, 2013);
- direct foreign investment (Sayari, Sari & Hammoudeh, 2018);
- value of GDP (Ivanova & Vojtovic, 2016).
Meanwhile, the issue of country-specific aspects of the impact of economic freedom on the socioeconomic development of economies is of considerable academic interest - how similar are the country-specific manifestations of this phenomenon?
Our previous work (Shkiotov, Markin & Shcherbakova, 2022) identified a strong direct correlation between the level of economic freedom and the Human Development Index in Russia.
The challenge is the results of the study may be affected both by the limitations of the model used and by the unprecedented external shocks to which the Russian economy has been subjected in recent years.
The purpose of this paper is to assess the impact of the level of economic freedom on the dynamics of socio-economic processes in the four EAEU countries.
Table 1 presents a number of hypotheses describing the impact of economic freedom on the dynamics of a country's socio-economic indicators.
Table 1 - Socio-economic aspects of economic freedom in economic studies.
The authors The hypothesis Identifies the dependence between...
Staufer & Brockmann (2018) economic freedom affects people's quality of life the level of economic freedom and the Human Development Index
Cebula, Clark & Mixon (2013) economic freedom affects per capita income level of economic freedom and GDP per capita
Sayari, Sari & Hammoudeh (2018) economic freedom affects the flow of FDI the level of economic freedom and amount of FDI
Ivanova & Vojtovic (2016) economic freedom affects the dynamics of economic growth the level of economic freedom and the value of GDP
Source: composed by author
Methods
The research methodology is described in detail in our previous study (Shkiotov, Markin & Shcherbakova, 2022).
Study hypothesis:
1. We possess a direct (statistically significant) correlation between the level of economic freedom and GDP per capita, GDP, foreign direct investment in the economy and the Human Development Index.
2. That meant there should be an inverse (statistically significant) relationship between the level of economic freedom and the Corruption Perceptions Index.
Selected countries: Kazakhstan, Belarus, Kyrgyzstan, Armenia.
Research method is correlation analysis. During this study, a significance level of 5% was assigned to test the validity of the correlation coefficient.
Table 2 provides the background of the analysis.
Table 2 - Data for correlation analysis for EAEU countries, 2012-2021
Data Set 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Belarus Corruption Perception Index 31 29 31 32 40 44 44 45 47 41
Index of Economic Freedom 49.0 48.0 50.1 49.8 48.8 58.6 58.1 57.9 61.7 61.0
GDP per capita (current US$) 6953. 132515 7998. 125239 8341. 399679 5967. 052204 5039. 681886 5785. 670673 6360. 062473 6837. 717826 6424. 152176 N/A
Current account balance (BoP, current US$) -1308 100000 -19839 00000 -17886 00000 -15457 00000 -11240 00000 -12085 00000 -13713 00000 -12771 00000 -13146 00000 -13178 68223
GDP (current US$) 6568 5102555 75527 984234 78813 839984 56454 734397 477226 57821 54726 595249 60031 262269 64409 647194 6025 8239056 N/A
Human Development Index (HDI) 0.806 0.811 0.814 0.814 0.815 0.819 0.823 0.823 N/A N/A
Kazakhstan Corruption Perception Index 28 26 29 28 29 31 31 34 38 37
Index of Economic Freedom 63.6 63.0 63.7 63.3 63.6 69.0 69.1 65.4 69.6 71.1
GDP per capita (current US$) 12386. 69927 13890. 63096 12807. 26069 10510. 77189 7714. 841844 9247. 581331 9812. 626371 9812. 595808 9122. 23343 N/A
Current account balance (BoP, current US$) -11855 850310 -80343 78287 -46745 70616 -32614 47512 -137463 81891 -375612 9608 -472268 6549 -58954 89124 -60559 99984 N/A
GDP (current US$) 2,079 99E+11 2,366 35E+11 2,2141 6E+11 1,843 88E+11 1,3727 8E+11 1,6680 6E+11 1,793 4E+11 1,8166 7E+11 1,7108 2E+11 N/A
Human Development Index (HDI) 0.782 0.791 0.798 0.806 0.808 0.815 0.819 0.825 N/A N/A
Armenia Corruption Perception Index 34 36 37 35 33 35 35 42 49 49
Index of Economic Freedom 68.8 69.4 68.9 67.1 67.0 70.3 68.7 67.7 70.6 71.9
GDP per capita (current US$) 3681. 844691 3838. 17388 3986. 231624 3607. 289299 3591 .828052 3914. 527854 4220. 540321 4604. 646324 4266 .018074 N/A
Current account balance (BoP, current US$) -4732 10732.1 -31582 9524.3 -3777 74324 -1553 76062 -26321 3931.7 -22187 8286.3 -25981 2449.7 -2339 41145 -74462 449.07 N/A
GDP (current US$) 10619 320049 11121 465767 116095 12940 105533 37673 10546 135160 115274 58566 124579 41907 13619 291361 12641 209802 N/A
Human Development Index (HDI) 0.756 0.762 0.764 0.768 0.766 0.769 0.771 0.776 N/A N/A
Kyrgyzstan Corruption Perception Index 17 24 24 27 28 28 29 29 31 27
Index of Economic Freedom 60.2 59.6 61.1 61.3 59.6 61.1 62.8 62.3 62.9 63.7
GDP per capita (current US$) 1177. 974735 1282. 437162 1279. 769783 1121. 082835 1120. 666513 1242. 769643 1308. 140165 1374. 032105 1175. 698152 N/A
Current account balance (BoP, current US$) -2770 59600 -61906 2900 -23043 5500 -10090 94000 -57896 8800 7814 3900 -1392 67900 -3366 59800 5824 05200 N/A
GDP (current US$) 6605 139933 73350 27592 74680 96567 66781 78340 68130 92066 77029 34800 82711 08638 88710 26074 7735 976273 N/A
Human Development Index (HDI) 0.674 0.680 0.686 0.690 0.691 0.694 0.696 0.697 N/A N/A
Source: https://www.heritage.org/index/pdf/2021/book/2021_IndexofEconomicFreedom_Highlights.pdf;
https://databank.worldbank.org/indicator/NY.GDP.PCAP.CD/1ff4a498/Popular-Indicators# https://hdr.undp.org/en/indicators/137506#
Results
The results of the correlation analysis and their visual interpretation are presented in Table 3 and Figures
1-4.
Figure 1. Scatter chart between Index of Economic Freedom (IEF_R) and GDP per capita (GDP_PC_R), Foreign Direct Investment (INV_R), GDP (GDP_R), Human Development Index (HDI_R) for the
Belarusian economy
2
'1
■1 0 1 ¿01 scale(IEF_K) scale(IEF_K)
Figure 2. Scatter chart between Index of Economic Freedom (IEF_R) and GDP per capita (GDP_PC_R), Foreign Direct Investment (INV_R), GDP (GDP_R), Human Development Index (HDI_R) for the economy
of Kazakhstan
Source: composed by author
2- 2-
•10 1 -10 1 scale flEF_A) scale{IEF_A)
Figure 3. Scatter chart between Index of Economic Freedom (IEF_R) and GDP per capita (GDP_PC_R), Foreign Direct Investment (INV_R), GDP (GDP_R), Human Development Index (HDI_R) for the economy
of Armenia
-2- { ~ -Z-
-\ 0 I -10 1
scale(IEFKR) scale(lEFKR)
Figure 4. Scatter chart between Index of Economic Freedom (IEF_R) and GDP per capita (GDP_PC_R), Foreign Direct Investment (INV_R), GDP (GDP_R), Human Development Index (HDI_R) for the economy
of Kyrgyzstan
Source: composed by author
Table 3 - Results of correlation analysis
Corruption Perception Index GDP per capita (current US$) Current account balance (BoP, current US$) GDP Human Development Index (HDI)
Armenia a Dependence average direct (0.665638) No dependence No dependence No dependence No dependence
Belarus 0 -Ö e e r Ph c 1 im o Dependence average direct (0.8630852) No dependence No dependence No dependence Dependence strong direct (0.8596929)
Kazakhstan n 0 c E O X e "Ö n 1 Dependence average direct (0.8154698) No dependence No dependence No dependence Dependence average direct (0.6502255)
Kyrgyzstan No dependence No dependence No dependence Dependence average direct (0.6946909) Dependence average direct (0.6846682)
Discussion
The results obtained for the EAEU countries confirm the research results:
- Staufer & Brockmann (2018) on the correlation between the level of economic freedom and the Human Development Index (for Belarus, Kazakhstan, Kyrgyzstan);
- Malanski & Povoa (2021) on the correlation between the level of economic freedom and the level of corruption (for Armenia, Belarus, Kazakhstan);
- Ivanova & Vojtovic (2016) on the correlation between the level of economic freedom and GDP (for Kyrgyzstan).
- The results for the EAEU countries are inconsistent with the results of the studies:
- Cebula, Clark & Mixon (2013) on the correlation between economic freedom and GDP per capita;
- Sayari, Sari & Hammoudeh (2018) on the correlation between the level of economic freedom and foreign direct investment in the economy.
Conclusions
Table 3 shows:
- average direct correlation (statistically significant) between the level of economic freedom and the level of perception of corruption for the Armenian economy. However, the level of economic freedom has no influence (statistically) on GDP per capita, total foreign direct investment, GDP volume and the Human Development Index for that economy.
- strong direct correlation (statistically significant) between the level of economic freedom and the level of perception of corruption, as well as the Human Development Index for the Belarusian economy. However, the level of economic freedom has no influence (statistically) on GDP per capita, total foreign direct investment, GDP volume and the Human Development Index for that economy.
- strong direct correlation (statistically significant) between the level of economic freedom and the level of perception of corruption, as well as the Human Development Index for the economy of Kazakhstan. However, the level of economic freedom has no influence (statistically) on GDP per capita, total foreign direct investment, GDP volume and the Human Development Index for that economy.
- average direct relationship (statistically significant) between the level of economic freedom and the Human Development Index as well as the value of GDP for the economy of Kyrgyzstan. However, the level of economic freedom has no influence (statistically) on GDP per capita, total foreign direct investment, GDP volume and the Human Development Index for that economy.
The results of the study can be explained by the limitations of the model used (insufficient sample to conduct correlation analysis; changes in the methodology of data collection and evaluation of complex indicators such as HDI and CPI; uncertainty in the conceptual framework (differences in understanding of corruption, quality of life); indirect influence of economic freedom on the indicators examined.
Therefore, the hypotheses and results derived will stimulate a new wave of applied research on economic freedom for the EAEU countries.
References
1. The Heritage Foundation. (2022). Index of Economic Freedom. Retrieved from https://www.heritage. org/index/download#Jaccessed 10.04.2022).
2. Shkiotov, S. V., Markin, M. I., & Shcherbakova, A. A. (2022). Assessing the impact of the level of corruption on the socio-economic development of the national economy: Russian Federation. Teoreticheskaya ekonomika, 88(4), 82. Retrieved from https://doi.org/10.52957/22213260_2022_4_82 (in Russian).
3. Hellman, J. S., Jones, G., Kaufmann, D., & Schankerman, M. (2000). Measuring Governance, Corruption, and State Capture. The World Bank Policy Research WP, 2444.
4. Malanski, L. K., & Povoa, A. C. S. (2021). Economic growth and corruption in emerging markets: Does economic freedom matter? International Economics, 166, 58-70. Retrieved from https://doi.org/10.1016Aj. inteco.2021.02.001
5. Cebula, R. J., Clark, J. R., & Mixon, F. G. (2013). The impact of economic freedom on per capita real GDP: A study of OECD nations. Journal of Regional Analysis and Policy, 43(2), 34-41.
6. Sayari, N., Sari, R., & Hammoudeh, S. (2018). The impact of value added components of GDP and FDI on economic freedom in Europe. Economic Systems, 42(2), 282-294. Retrieved from https://doi. org/10.1016/j.ecosys.2017.03.003
7. Ivanova, E., & Vojtovic, S. (2016). Macroeconomic analysis of indicators of economic freedom, economic sentiment and GDP: Slovakia case study. Actual Problems of Economics, 184(10), 68-78.
8. Staufer, J., & Brockmann, P. (2018). Forecasting macroeconomical indices with machine learning: impartial analysis of the relation between economic freedom and quality of life. International Journal on Soft Computing, Artificial Intelligence and Applications, 7(4), 21-35. Retrieved from https://doi.org/10.5121/ ijscai.2018.7402
Received 14.04.2022
Revised 14.05.2022
Accepted 02.06.2022
