New Study by Turner College's Frank Mixon Examines Impact of Global Economic and Political Uncertainty on Economic Growth in Eastern Europe

Most countries experience some degree of economic and political uncertainty. Whether these uncertainties originate from domestic or international sources, they significantly impact economic performance. For example, an increase in uncertainty leads to a “wait-and-see” response from private firms, whose investment decisions are important to the overall macroeconomy. Similarly, households tend to confront uncertainty by reducing consumption and increasing savings to maintain some degree of economic security. In addition to economic and political uncertainty (or government uncertainty), economic growth is also influenced by the degree of economic freedom in a country. Economic freedom encompasses key institutional factors such as property rights, the rule of law, trade openness, regulatory efficiency, and limited government intervention, to name a few. Greater economic freedom promotes economic growth by encouraging business sector investment and fostering competition in markets. How uncertainty and economic freedom affect economic growth remains an empirical question. A new study by Turner College economist Frank Mixon, the University of New Haven's Kamal Upadhyaya, the University of North Carolina-Pembroke's Bishwa Koirala, and Methodist University's Hem Basnet examines the effects of global economic/political uncertainty and economic freedom on economic growth in five Eastern European countries, namely Bulgaria, the Czech Republic, Hungary, Poland, and Romania, over the period 1995–2024. Utilizing panel data, the study employs an augmented Cobb–Douglas production function incorporating the World Uncertainty Index and the Economic Freedom Index alongside capital and labor. The model is estimated using a generalized method of moments (GMM) and an error-correction dynamic panel data (DPD) approach. The results indicate that labor and capital positively affect growth in the short run while global economic/political uncertainty is found to significantly reduce economic growth, with a 1% increase leading to a 0.69% decline in real GDP growth. In contrast, economic freedom is found to have a significantly positive effect on real GDP growth, such that a 1% increase in economic freedom is associated with a 1.39% increase in real GDP growth.