DefinePK

Abstract

Economic growth is influenced not only by market dynamics but also by the quality of governance, the degree of economic freedom, and the prevalence of corruption. While existing literature emphasizes the role of institutions in development, comparative empirical analysis across regions and income levels remains limited. This study aims to examine the comparative impact of economic freedom, governance quality, and corruption control on GDP growth across a balanced panel of countries over a two year period, stratified by income levels and regional representation. A quantitative cross-country comparative research design was adopted. Secondary data were collected from reliable sources including the World Bank, Heritage Foundation, Transparency International, and Worldwide Governance Indicators. The study employed panel data econometric techniques: Fixed Effects (FE), Random Effects (RE), the Hausman Test, and Generalized Method of Moments (GMM) estimation. Key variables included GDP growth (dependent), Economic Freedom Index, Governance Indicators (Rule of Law, Government Effectiveness, Regulatory Quality), CPI (inverted), and control variables like inflation, population growth, investment, and education index. All analyses were conducted using STATA v17. Descriptive and correlation analysis revealed strong associations between economic growth and institutional quality. Regression results (FE, RE, and GMM) consistently showed that higher economic freedom, lower corruption, and effective governance significantly contribute to GDP growth. The Hausman Test confirmed the suitability of the fixed effects model, while GMM addressed endogeneity. Regional analysis showed that countries in the highest governance quartile had nearly twice the growth rate of those in the lowest quartile. Institutional strength especially economic freedom and good governance is a powerful driver of long-term economic growth. Policymakers should prioritize institutional reform for sustained development.
Keywords: Economic Freedom, Governance Quality, Corruption Perception Index, GDP Growth, Institutional Development