Impact of Political Stability and Economic Freedom on the Economic Growth in the MENA Region

Abstract

This study examines the relationship between political stability, economic freedom, and GDP annual growth rate in 16 MENA countries from 2001 to 2021. Using panel data regression analysis, we find that political stability has a statistically significant positive relationship with GDP annual growth, with a 1 point increase in the political stability index leading to a 0.2 percentage points increase in GDP annual growth rate. Similarly, we find that economic freedom also has a statistically significant positive relationship with GDP annual growth rate, with an increase in the economic freedom index by 1 unit leading to a 0.5 percentage point increase in GDP annual growth. Our findings suggest that promoting both political stability and economic freedom is crucial for promoting economic growth in MENA countries. The study also examined the impact of some of the sub-indexes of the economic freedom index on economic growth in the MENA region. Busniness freedom, and investment freedom has a positive signficant impact on GDP annual growth rate, while tax burden has a negative impact on economic growth rate. However, the study also highlights the need for caution in generalizing these findings to countries outside of the sample, as data limitations prevented us from including all MENA countries. Therefore, policymakers should focus on implementing policies that promote political stability, economic freedom, and institutional quality to foster sustainable economic growth in the MENA region, while also acknowledging the potential differences across countries.