Twin Transition Priorities Within the Sustainable Development Goals and Economic Freedom in the European Union: A Pillar‐Level Analysis

Abstract

ABSTRACT Europe's twin green and digital transition seeks to align sustainability with digitalization, yet it remains unclear whether progress in twin transition‐relevant SDGs coincides with changes in economic freedom dimensions. Using an EU‐27 panel from 2000 to 2024, we examine the link between the Heritage Index of Economic Freedom and a specific SDG Strategic Priorities Index (SDG_SPI), which aggregates SDGs 4, 7, 8, 9, 13, and 17. The empirical design uses two‐way fixed effects with lagged regressors and Driscoll–Kraay standard errors to estimate within‐country associations while accounting for country heterogeneity, common time shocks, cross‐sectional dependence, and serial correlation. The results indicate an uneven institutional footprint. SDG_SPI is not robustly associated with the overall economic freedom score, Rule of Law, or Regulatory Efficiency. Its most consistent association concerns Government Size. A one‐point increase in SDG_SPI is linked to a Government Size score lower by roughly 1.4 points, which reflects a larger fiscal footprint under Heritage coding rather than weaker institutional quality. Evidence for Market Openness is positive in baseline models but becomes fragile once outcome persistence is modeled. In otherwise comparable specifications, the broader SDG index displays a more diffuse institutional association across pillars. The findings highlight the value of decomposing economic freedom when assessing the institutional footprint of the twin transition.