Economic freedom and growth dynamics in Indonesia: an empirical analysis of indicators driving sustainable development

Irsan Hardi, Mohd Afjal, Mohsin Khan, Ghalieb Mutig Idroes, Teuku Rizky Noviandy and Resty Tamara Utami

Cogent Economics & Finance, 2024, vol. 12, issue 1, 2433023

Abstract: This study investigates the contributions of economic freedom indicators to Indonesia’s economic growth from 1995 to 2022, applying the Solow growth model within both static and dynamic frameworks. Using Robust Least Squares (RLS) and dynamic methods – such as Dynamic Ordinary Least Squares (DOLS) and Fully Modified Ordinary Least Squares (FMOLS) – and conducting robustness checks with Canonical Cointegration Regression (CCR), the analysis confirms that eight out of nine indicators – particularly business freedom, monetary freedom, trade freedom, property rights, government integrity, tax burden, investment freedom, and financial freedom – positively influence Indonesia’s economic growth. These findings underscore the importance of policies that enhance property rights, minimize government intervention, promote investment, and encourage competitive markets. The study’s insights aim to guide Indonesian policymakers in leveraging economic freedom to foster sustainable, long-term growth.While previous research in Indonesia has assessed the composite impact of the economic freedom index on economic growth, this study stands out by adopting a decomposing approach that evaluates each economic freedom indicator separately. The results provide more comprehensive, evidence-based insights for policymakers seeking to foster sustainable economic growth through enhanced economic freedom.

Date: 2024
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DOI: 10.1080/23322039.2024.2433023

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