On the Impacts of Economic Freedom on International Trade Flows: Asymmetries and Freedom Components

Abstract

This paper employs a gravity equation to estimate the effects of economic freedom on U.S. consumer exports and imports for 131 countries over the years 2000 - 2005. Using the newly updated Fraser Institute's Economic Freedom of the World Index, we find that increased economic freedom in the rest of the world would increase the United States' overall trade volume. We also consider whether imports and exports are affected asymmetrically with respect to income, transaction costs, and economic freedom. We find considerable differences in how these variables affect imports and exports of consumer goods. Our results also give some insight into how economic freedom might affect the U.S. trade position.gravity model, trade flows, trade balance