Investigating the Effects of Economic Freedom on Economic Growth: Evidence from Iran (1969–2025)
Keywords:
Economic growth, Economic freedom Indexes, Auto Regressive Distributed Lags(ARDL)Abstract
Objective: This study aims to examine the short-run and long-run effects of economic freedom indicators on Iran’s economic growth during the period 1969–2025 using a dynamic econometric framework.
Methodology: The study adopts an applied quantitative design based on a descriptive–analytical approach. Annual time-series data for Iran covering 1969–2025 were employed. Real gross domestic product served as the dependent variable, while explanatory variables included size of government, legal system and property rights security, sound money access, freedom of international trade, regulation, and population. Economic freedom indicators were obtained from the Fraser Institute database, and macroeconomic data were collected from the World Development Indicators of the World Bank. The Autoregressive Distributed Lag (ARDL) model was applied to estimate both short-run and long-run relationships. Stationarity of variables was examined through unit root testing, followed by cointegration analysis. An Error Correction Model (ECM) was estimated to capture adjustment dynamics toward long-run equilibrium, and structural stability was evaluated through diagnostic stability tests.
Findings: Empirical results indicate that all economic freedom components except government size exert statistically significant effects on economic growth in both the short and long run. Legal structure and property rights protection, access to sound money, and regulatory quality positively influence economic growth, whereas international trade freedom shows a significant negative impact. Among the examined variables, the regulation index demonstrates the largest elasticity with respect to economic growth. The statistically significant negative error correction coefficient confirms a rapid adjustment toward long-run equilibrium.
Conclusion: The findings suggest that sustainable economic growth in Iran depends primarily on institutional quality, monetary stability, and regulatory reform rather than expansion of government size. Policy strategies should therefore prioritize institutional strengthening, regulatory efficiency, and enhancement of property rights protection to foster long-term economic performance.
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