DOES ECONOMIC FREEDOMS EFFECT ON EMPLOYMENT? AN ANALYSIS FOR BRICS-T

Serap Barış, Özgür Koçbulut

Abstract


Economic freedom affects macroeconomic variables of an economy such as especially economic growth, income, income distribution, foreign direct investment, unemployment and employment. High level of economic freedom leads to an increase in employment by increasing new employment and investment opportunities through supporting entrepreneurship activities in the country and eliminating legal and bureaucratic barriers against the foundation of enterprises. Within this context, the aim of this study is to investigate the effects of economic freedoms on employment in BRICS-T countries. It has been analyzed by considering business freedom and investment freedom in addition to general economic freedom. In this study, relation between economic freedom and employment has been analyzed with dynamic panel data in terms of BRICS-T countries by using data from 1995-2016 period. In dynamic panel data analysis, it is required to determine whether there is a dependency between cross-sections which form the first panel before the unit root tests are conducted. In the study, LM (Lagrange Multiplier) test of Breusch and Pagan (1980), CD (Cross Section Dependent) and CDLM tests of Pesaran (2004) and LMadj (Bias-Adjusted Cross Sectionally Dependence Lagrange Multiplier) tests of Pesaran et all (2008) were used to test the cross-sectional dependency. As a result of these tests, the presence of cross-sectional dependency was determined. Unit root analysis was conducted using Pesaran (2007) developed CADF (Crosssectionally Augmented Dickey Fuller) test, which is a second generation panel unit root test and take cross-sectional dependency into account, and it was evidenced that the series weren’t fixed. In the study, the existence of relation of cointegration between the series is analyzed with Durbin-H (Durbin-Hausman) the panel bootstrap cointegtaion test which is developed by Westerlund (2008). According to cointegration test results of Durbin-H (Durbin-Hausman), cointegration was found between series. Long-term cointegration coefficients of the panel were estimated using CCE (Com­mon Corelated Effect) estimator, which was developed by Pesaran (2006) and takes the cross-sectional dependency into account. According to estimations, economic freedoms (economic freedom, business freedom, investment freedom) have a long-term and positive effect on employment in BRICS-T countries. A percent increase in the degree of general economic freedom raises employment rate by 0,24, while a percent increase in the degree of business freedom and investment freedom raises employment rate respectively by 0.05 and 0.06 in BRICS-T countries. These results indicate that policies promoting economic freedoms in BRICS-T countries should also be taken into consideration. 


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