Abstract

Although economic freedom fosters economic growth, its direct impact on subjective well-being remains a subject of intense academic debate. This study investigates the relationship between economic freedom and life satisfaction through the mediating mechanism of economic growth, while assessing the conditional moderating role played by the quality of governance. Utilizing a balanced panel dataset of 90 observations from 30 European countries over the 2018-2023 period, we estimate a moderated mediation model using bootstrap regressions and the conditional process analysis framework (Hayes Model 14). The empirical findings reveal that economic growth fully mediates the relationship between economic freedom and life satisfaction, as the direct effect of economic freedom turns out to be statistically insignificant. Crucially, governance quality negatively moderates the growth-to-well-being nexus: the indirect effect of economic freedom is positive and highly significant in low-to-medium governance environments, but diminishes and vanishes in nations characterized by high institutional quality. We conclude that in advanced European economies, the marginal well-being dividend of economic growth is not uniform, exhibiting diminishing returns in the presence of strong democratic institutions and providing robust empirical support for ‘Beyond GDP’ multidimensional development frameworks.

Keywords: Quality of life; Economic freedom; Good governance; Moderated mediation; Beyond GDP; Subjective well-being

JEL Classification: I31; O43; C30; P51