Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 25: Does free trade really reduce growth? Further testing using the economic freedom index

Niclas Berggren () and Henrik Jordahl
Additional contact information
Niclas Berggren: The Ratio Institute, Postal: P.O. Box 5095, SE-102 42 Stockholm, Sweden
Henrik Jordahl: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

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.

Keywords: free trade; economic freedom; economic growth

JEL-codes: E61; F13; F43; O24; O40; P17

31 pages, June 3, 2003

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