ALL ECONOMIC FREEDOM IS NOT CREATED EQUAL: EVIDENCE FROM A GRAVITY MODEL

Authors

  • ROBERT J. SONORA

    1. Sonora: Department of Economics, Fort Lewis College, Durango, CO 81301. Phone 907.247.7296, Fax 970 247 7205, E-mail sonora_t@fortlewis.edu
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    • I would like to thank Craig Depken and two anonymous referees for comments which undoubtedly improved the paper. Discussions with Josip Tica were, likewise, fruitful. A portion of this research was conducted while I was a Visiting Professor of Economics in the Department of Macroeconomics and Economics Development at the Faculty of Economics and Business, University of Zagreb, and I would like to thank them for their support. Any existing shortcomings are mine alone.


Abstract

This article analyzes the differential impacts of different types of economic freedom on bilateral trade flows between the United States and 122 countries over 10 years. A gravity model of trade is employed to investigate how various freedom indices assembled by the Fraser Institute impact the volume of trade, exports, and imports. The main findings of the article are that each of the freedom indices impact heterogeneously across the measure of trade flows, with the changes in Regulation having the biggest impact on trade. All combinations of freedom are used to find the mixture of freedom which yields the largest trade gains. The largest gains from trade generally combine Business Regulation in a variety of different configurations. The smallest gains, or losses, to trade arise with augmented monetary independence. (JEL D02, F14, F55)

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