Democracy, Economic Freedom and Growth in Transition Economies

Summary This article examines the interrelationships between democracy, economic freedoms, and economic growth. We study 24 post‐communist economies over the period 1990–2007, and find that strong democratic institutions are associated with greater economic freedoms and larger public sectors and public deficits. Stronger economic freedoms lead to more rapid growth, but large public sectors and public deficits have adverse effects on growth. We identify trade freedom, monetary freedom and freedom from corruption as the most important indicators of economic freedom for growth in transition countries over the period 1994–2007. Some of the factors associated with faster growth prior to the crisis were associated with greater declines in growth during the first years of the financial crisis (2008–2009).