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The Impact of Business Regulation and Economic Freedom on Economic Growth

  • Journal of Regulation Studies
  • 2008, 17(2), pp.3-25
  • Publisher : 한국규제학회
  • Research Area : Social Science > Public Administration

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1한국경제연구원

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ABSTRACT

This paper studies questions regarding the effect of economic freedom and business regulation on economic growth. A model is constructed with business regulations or economic freedom as a critical factor for economic growth, to estimate their effect on economic growth. The results indicate that economic freedom and government regulation of business is an important determinant of economic growth. Estimated coefficients of business regulation are negative with the growth rate of per capita GDP, statistically significant at 5% significance level. Greater economic freedom means higher growth rate of the economy measured by per capita GDP. The results are obtained by controlling initial per capita GDP, enrollment rate of secondary and primary schools, investment ratio, governmental consumption rate, law & order index, dummy variables across regions of the world. Tightened business regulations constrain economic growth while economic freedom contributes to economic growth, according to empirical analysis. This implies that increasing economic freedom or more active measure of eliminating economic regulations affecting companies makes it possible to promote economic growth. In terms of business regulations, the World Bank reports indicate that Korea should place emphasis on starting a business, labor regulations and administrative regulations in tax payments. By improving these conditions for doing business, economic growth is expected to accelerate.

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