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

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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Paper provided by The Ratio Institute in its series Ratio Working Papers with number 25.

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Length: 31 pages
Date of creation: 03 Jun 2003
Date of revision:
Publication status: Published in Public Choice, 2005, pages 99-114.
Handle: RePEc:hhs:ratioi:0025
Contact details of provider: Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Phone: 08-441 59 00
Fax: 08-441 59 29
Web page: http://www.ratio.se/
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  11. Keller, Wolfgang & Yeaple, Stephen R., 2005. "Multinational enterprises international trade, and productivity growth: Firm-level evidence from the United States," Discussion Paper Series 1: Economic Studies 2005,07, Deutsche Bundesbank, Research Centre.
  12. Berggren, Niclas & Jordahl, Henrik, 2003. "Does free trade really reduce growth? Further testing using the economic freedom index," Ratio Working Papers 25, The Ratio Institute.
  13. Dollar, David & Kraay, Aart, 2001. "Trade, growth, and poverty," Policy Research Working Paper Series 2615, The World Bank.
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