There have been numerous studies examining the relationship between economic freedom and economic growth. At the same time, there have been relatively few studies examining production or cost relationships for microfinance institutions, largely due to the lack of adequate data. The goal of this chapter is to combine these two strands of literature. In particular, we examine the impact of improvements in economic freedom on microfinance efficiency for microfinance institutions in Europe and Central Asia using a translog cost function. We find that increased microfinance efficiency is associated with improvements in economic freedom and that those countries experiencing large changes in economic freedom experience significant improvements in microfinance efficiency.
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