Although it is generally accepted that economic freedom stimulates economic growth,
its effects in transitional economies are still up for debate. More empirical research
is needed to examine the long-term effects of economic freedom on growth in the Western
Balkans, a region characterised by uneven reform trajectories, fiscal pressures, and
institutional fragility. This study examines the effects of seven fundamental factors
on real GDP per capita growth (annual percentage change) in six Western Balkan nations
between 2013 and 2023. These factors include property rights, government spending,
government integrity, business freedom, monetary freedom, trade openness, and education
spending. Importantly, in order to better capture macroeconomic constraints, it takes
into account two fiscal burden indicators: the public debt and the government budget
deficit. A triangulated analytical framework is used: Random Forest regression identifies
non-linear patterns and ranks the importance of variables; Bayesian Vector Autoregression
(VAR) models dynamic interactions and inertia; and the Generalised Method of Moments
(GMM) handles endogeneity and reveals causal relationships. The GMM results show that
while government integrity (β = −0.0820, p = 0.0206), government spending (β = −0.0066,
p = 0.0312), and public debt (β = −0.0172, p = 0.0456) have negative effects on growth,
property rights (β = 0.0367, p = 0.0208), monetary freedom (β = 0.0413, p = 0.0221),
and the government budget deficit (β = 0.0498, p = 0.0371) have positive and significant
effects on growth. Although the majority of economic freedom indicators are statistically
insignificant, Bayesian VAR confirms strong growth persistence (GDP(−1) = 0.7169,
SE = 0.0373). On the other hand, the Random Forest model identifies the most significant
variables as property rights (3.72), public debt (5.88), business freedom (4.65),
and government spending (IncNodePurity = 9.80). These results show that the growth
effects of economic freedom depend on the context and are mediated by the state of
the economy. Market liberalisation and legal certainty promote growth, but their advantages
could be offset by inadequate budgetary restraint and difficulties with transitional
governance. A hybrid policy approach, one that blends strategic market reforms with
improved institutional quality, prudent debt management, and efficient public spending,
is necessary for the region to achieve sustainable development.
