Economic Freedom, TFP and Growth: Comparative Analysis of GCC and East Asian Newly Industrialized Economies (NIEs)

AuthorMohamed Ben Mimoun - Ali Essaggay
PositionCollege of Islamic Economics and Finance Umm Al-Qura University, KSA
Pages176-190
Vo
l. 4 N
o
. 1
M
arc
h,
201
8
A
cademic Journal o
f
Business,
A
dministration, Law and Social Science
s
II
PCCL Publishin
g
, Graz-
A
ustri
a
I
SSN 2410-391
8
A
cces online at www.ii
p
ccl.or
g
17
6
Economic Freedom, TFP and Growth: Comparative Anal
y
sis of GCC and East
Asian New
In
ustria
ize
Economies (NIEs)
Mo
h
a
m
e
d B
e
n M
i
m
ou
n
College o
f
I
slamic
E
conomics and Finance
U
mm
A
l-Qura
U
niversity - KS
A
A
l
i Essagga
y
College o
f
I
slamic
E
conomics and Finance
U
mm
A
l-Qura
U
niversity - KS
A
This study was supported by the Deanship o
f
Scienti
c Research at
U
mm
A
l-Qura
U
niver-
sity- KS
A
, under Grant number 43506005.
Ab
str
a
c
t
This study tests empirically the contribution of economic freedom in explaining the observed
g
ap in GDP per worker between GCC countries and
E
ast
A
sian N
IE
s.
I
t uses both «Fraser
I
nstitute» and «Herita
g
e Foundation» indexes in their a
gg
re
g
ated and disa
gg
re
g
ated forms
and nds robust evidence that lower economic freedom in GCC re
g
ion is a ma
j
or source behind
i
ts low productivity compared to
E
ast
A
sian N
IE
s, over the last ve decades. The bulk o
f
t
his e ect transmits through Total Factors Productivity.
I
ndeed, depending on the index used,
e
conomic
f
reedom, alone, explains between 55 and 65 percent o
f
the observed TFP di
erential
and between 68 and 72 percent GDP per worker di erential across these two regions. Such
r
esult clearly appeals GCC’s governments to further free their economic institutions.
K
e
y
words:
E
conomic Freedom, TFP, GDP per worker, GCC,
E
ast
A
sian
NIE
s.
J
EL Classi cation: O1, O43, O57
I
ntr
odu
ct
io
n
S
ince the
f
ounding works o
f
North Douglas and Williamson in the 90’s, it is now
we
ll
esta
bl
is
h
e
d
in t
h
e “New
I
nstitutiona
l
E
conomics an
d
Deve
l
o
p
ment
l
iterature”
t
hat, institutions are the
f
undamental cause o
f
economic growth and develo
p
ment
di
erences across countries. Together, the legal, administrative,
p
olitical and
e
conomic organizations that under
p
in ever
y
societ
y
f
orm what one can call an
“enabling environment”
f
or the creation o
f
wealth. When the
y
f
ail, trust is eroded
and economies can become damaged. This stud
y
f
ocuses on “economic
f
reedom”
as a
p
rox
y
o
f
the
q
ualit
y
o
f
economic
p
olicies and institutions and aims to assess
its contribution in ex
p
laining the s
p
ectacular economic develo
p
ment ga
p
which
is o
b
serve
d
b
etween some
E
ast
A
sian countries name
ly
, t
h
e New
ly
I
n
d
ustria
l
ize
d
E
conomies (N
IE
s, herea
er), (i.e., Singa
p
ore, Hong-Kong and South Korea) and the
o
ther develo
p
ing countries worldwide during the last
ve decades. More
p
recisel
y
,
t
he stud
y
com
p
ares these
A
sian N
IE
s to the countries o
f
the Gul
f
Coo
p
eration Council
(GCC) and aims at bringing answers to the
f
ollowing
q
uestions: i) How and to what
e
xtent do economic
f
reedom ex
p
lain di
erences in
p
roductivit
y
between countries
of
the two re
g
ions? ii)
Of
all the economic
f
reedom di
erences that exist, which ones
r
eall
y
ma er
?

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