The evaluation of the effect of improvement in quality of labor, credit and business regulations on economic growth (Case study of the selected developing and developed countries with emphasis on Iran)

In this research, the effect of labor, credit and business regulations on economic growth is investigated in a sample of developing and developed countries during 2000-2012. To do this, an endogenous growth model is estimated using panel data approach. Data on labor, credit and business regulations are derived from fifth subcomponent of Economic Freedom Index of Fraser Institute. Higher values of this subcomponent is related to improvement in quality of labor, credit and business regulations and more economic freedom. Based on economic theory and literature review, it is expected that improved quality of labor, credit and business regulations has a positive effect on economic growth. In general, results show that improvement in quality of labor, credit and business regulations affects economic growth positively among all sample countries and especially among high-income countries because these countries have stronger institutions. In addition, out of three components of labor, credit, and business regulations, the component related to labor market regulations has the most positive effect on economic growth; however, the effects of the other two components are not significant.