Revisiting the Invisible Hand Hypothesis: A Comparative Study between Bulgaria and Germany

Nadezhda Gesheva and Aleksandar Vasilev

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Abstract: This paper examines Adam Smith’s concept of an Invisible Hand of the market in light of the underlying assumptions for the theory to hold. Furthermore, the study focuses on Total Factor Productivity as a measure of efficiency of resource allocation, employs growth accounting in Bulgaria relative to a frontier country (Germany), and tries to explain the Total Factor Productivity gap with the difference in the quality of institutions and economic freedom performance (where the latter is based on the Freedom Index Indicators). Satisfactory results have been obtained, favoring the hypothesis that freer markets perform better and a “catching up” effect of Bulgaria’s Total Factor Productivity levels towards those of Germany has been observed. Finally, the study provides policy recommendations facilitating the Invisible Hand Process in Bulgaria for a more rapid convergence towards Germany’s productivity levels.

Keywords: Invisible Hand of the Market; Free Market Economy; Total Factor Productivity; Convergence (search for similar items in EconPapers)
JEL-codes: C82 O11 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-eff and nep-tra
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Related works:
Journal Article: Revisiting the ‘invisible hand’ hypothesis: a comparative study between Bulgaria and Germany (2017)
Journal Article: Revisiting the Invisible Hand Hypothesis: A Comparative Study between Bulgaria and Germany (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:144162

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