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Does free trade really reduce growth? Further testing using the economic freedom index

Abstract

While studies of the relationship between economic freedom and economic growth have shown it to be positive, significant and robust, it has rightly been argued that different areas of economic freedom may have quite different effects on growth. Along that line, Carlsson and Lundström (2002) present the surprising result that “International exchange: Freedom to trade with foreigners” is detrimental for growth. We find that “Taxes on international trade” seems to drive this result. However, using newer data and a more extensive sensitivity analysis, we find that it is not robust. Least Trimmed Squares-based estimation in fact renders the coefficient positive.

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Correspondence to Niclas Berggren.

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The authors wish to thank Mikael Bengtsson for excellent research assistance, Susanna Lundström, participants at the Public Choice Meetings in Nashville (2003), participants at seminars at the Department of Economics, Uppsala University, and the Trade Union Institute for Economic Research (FIEF), as well as an anonymous referee for helpful comments and suggestions, John Ekberg for introducing SAS, and Torsten och Ragnar Söderbergs stiftelser (Berggren) and Jan Wallanders och Tom Hedelius Stiftelse (Jordahl) for financial support.

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Berggren, N., Jordahl, H. Does free trade really reduce growth? Further testing using the economic freedom index. Public Choice 122, 99–114 (2005). https://doi.org/10.1007/s11127-005-3994-2

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  • DOI: https://doi.org/10.1007/s11127-005-3994-2

Keywords

  • Sensitivity Analysis
  • Economic Growth
  • International Trade
  • Public Finance
  • Free Trade