Estimating the Nonlinear Effect of Economic Freedom on Growth in Sub-Saharan Africa: A Panel Data Approach
摘要
This study seeks to determine the existence of a possible nonlinear effect of economic freedom on economic growth in Sub-Saharan Africa by comparatively fitting fixed-effects (FE) and random-effects (RE) models within the framework of panel kink modeling. Using the F-test, the study found that our panel data significantly exhibited the existence of FE. Also, the Breusch-Pagan LM test confirmed the presence of RE in the data. Based on this, we conducted the Hausman test with a specification that took into account the fact that covariance matrices obtained from both models are derived from the same estimated error variance of the efficient estimator to discriminate between both models. The test results strongly favored the FE model. Employing the bootstrap algorithm proposed by Li et al. (2022), economic freedom was found to have a phenomenal kink effect, with a kink value of 59%. Additionally, the study revealed that economic freedom has a positive kink effect on growth in the lower region, but a negative kink effect in the upper region. This raises a lot of alerts in terms of macroeconomic, macro-prudential, and international trade policy designs which focus on economic growth pursuits, with economic freedom as a mediating factor among SSA economies. Additionally, the study found that, except for FDI, which hurts growth, all the other covariates had positive impacts on economic growth.