The Effect Of The Degree Of Economic Freedom On Credit Access-- Sovereign Credit Default Swaps

Abstract

This study focuses on discovering the nature of the relationship between the degree of economic freedom and the level of access of credit in a country. It tests the hypothesis of a negative association between greater economic freedom and access to sovereign credit. Economic freedom is conceptualized by the Index of Economic Freedom which is published annually by The Heritage Foundation. Access to sovereign data is proxy by the price of sovereign credit swaps. Furthermore, the access to credit is assumed to be easier if the price of credit swaps is lower. It tests the argument that economic freedom is associated with lower prices on credit swaps using a Single Variable regression model. In this model the value of the index and its various parameters are treated as independent variables, and the price of the swaps as the outcome. The test results offer insights on the significance of the Index of Economic Freedom and its influence on the access to credit.