Does economic freedom affect green economic growth? Analyses of mediation, moderation, and heterogeneity in EU and non-EU countries

Xiaohuan Hou ¹ Jiafei Jin ² Yulei Feng ^3*

• ¹ Harbin University of Commerce, Harbin, Heilongjiang Province, China
• ² Harbin Institute of Technology, Harbin, Heilongjiang Province, China
• ³ Heilongjiang Polytechnic, Harbin, China

Economic freedom is widely regarded as a crucial driver of economic prosperity, but its relationship with green economic growth (GEG) remains underexplored, especially in the context of sustainable development. This study examines how economic freedom influences GEG, incorporating mediation, moderation, and heterogeneity analyses for both European Union (EU) and non-EU countries. Using a two-way fixed effects model, the results reveal that economic freedom significantly promotes GEG, with energy security risk acting as a key mediating factor. Specifically, higher economic freedom leads to reduced energy security risks, which, in turn, fosters the growth of a green economy. Additionally, the study finds that government efficiency and corruption control play crucial moderating roles: both factors enhance the positive impact of economic freedom on GEG, especially in non-EU countries. In terms of heterogeneity, economic freedom significantly promotes GEG in non-EU countries but shows no such effect in EU countries, where stringent environmental regulations and higher social welfare systems may dampen the impact. These findings suggest that while economic freedom has a clear positive effect on GEG, the role of government efficiency and the control of corruption are critical for optimizing its impact. Policymakers are encouraged to strengthen regulatory frameworks, improve government efficiency, and manage energy security risks to create a favorable environment for sustainable green economic growth.