Economic Freedom and Productivity in Africa

This study investigates which factors of economic freedom contribute the most to the growth in productivity. The study employs a dynamic common correlated mean group technique for data from 26 African countries on the period 2003-2017 to examine this particular relationship. Government size, legal structure and security of property rights, access to sound money, freedom of international trade, and regulation of credit, labor, and business are used as a measure for economic freedom, whereas output per worker is a proxy of productivity growth. Our results show that while legal structure and security of property rights, regulation of credit, labor, and business negatively affect productivity growth, limited government size, freedom of international trade, and access to sound money positively affect it in African countries. These results do not change when new control variables are introduced. Therefore, to improve their productivity growth level, African governments should promote more freedom to trade internationally, access to sound money, and limited government size. Explicitly, African governments must pursue policies that allow for low-cost imports and exports, low and stable inflation rate, and low government spending.