Impact of Economic Freedom and Corruption on Economic Growth in MENA Region: A Composed and Decomposed Analysis

Abstract

Economic freedom (EF) is crucial for economic growth, allowing individuals and businesses to operate without excessive government intrusion. Foreign direct investment (FDI) and control of corruption are also vital determinants of growth. However, the relationship between these factors is complex and influenced by additional factors such as capital formation and the labor force. This study examines the impact of these variables on economic growth in seventeen Middle East and North Africa (MENA) countries from 2002 to 2021 using the Feasible Generalized Least Squares (FGLS) model. The findings reveal that EF, both as an overall measure and through its subcomponents, has a positive impact on economic growth. Specifically, most subcomponents of EF significantly contribute to growth. Additionally, control of corruption is positively associated with economic growth. These relationships, however, are nuanced and influenced by other factors. Policymakers in MENA countries should prioritize policies that promote EF, as it has been proven to be a driving force for economic growth. Measures such as reducing government intervention, lowering taxes, improving property rights, and combating corruption should be implemented to foster higher economic growth and prosperity in the region.