Role of economic and political freedom in the emergence of global middle class

• We model the role political economy plays in growth of a middle class in emerging markets through international business activity.
• We study a comprehensive list of 34 emerging countries for the most recent 15 years.
• Positive reforms in political economy makes emerging markets more attractive for international business, while political freedom and freedom from corruption are not initially necessary.
• Sustained economic development leads to a growing middle class.
• Growth in middle class loops back and leads to further increases in international business activity.

The study examines the role of the economic freedoms such as regulatory efficiency, open markets and limited markets, political freedom and rule of law in the growth of the global middle class through international business activity in 34 emerging markets during the period of 1994–2011. The analysis suggests that some dimensions of freedom are more critical than others in making these markets attractive locations for international business and this in turn leads to domestic growth and thus growth of the middle class in these countries. The results also reveal the existence of a feedback loop, whereby the growing middle class becomes a driving force for further expansion of international business activity and economic growth.