INSTITUTIONS, INVESTMENT, AND GROWTH - NEW CROSS-COUNTRY AND PANEL-DATA EVIDENCE

This paper outlines the alternative channels through which institution s affect growth, and studies the empirical relationship between instit utions, investment, and growth. The empirical results indicate that (i ) free-market institutions have a positive effect on growth; (ii) econ omic freedom affects growth through both a direct effect on total fact or productivity and an indirect effect on investment; (iii) political and civil liberties may stimulate investment; (iv) an important intera ction exists between freedom and human capital investment; (v) Milton Friedman's conjectures on the relation between political and economic freedom are correct; (vi) promoting economic freedom is an effective p olicy toward facilitating growth and other types of freedom. (JEL O17, O40, P51).