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Does Free Trade Really Reduce Growth? Further Testing Using the Economic Freedom Index

PublicationArticle (with peer review)
Ekonomisk frihet, Ekonomisk tillväxt, Företagandets villkor, Frihandel, Niclas Berggren, Tillväxt

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.

Related content: Working Paper No. 25

Berggren, N. & Jordahl, H. (2005). ”Does Free Trade Really Reduce Growth? Further Testing Using the Economic Freedom Index.”Public Choice, 122(1-2): 99-114.

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Free to Trust: Economic Freedom and Social Capital
Article (with peer review)Publication
Berggren, N. & Jordahl, H.
Publication year

2006

Published in
Abstract

We present new evidence on how generalized trust is formed. Unlike previous studies, we look at the explanatory power of economic institutions, we use newer data, we incorporate more countries, and we use instrumental variables in an attempt to handle the causality problem. A central result is that legal structure and security of property rights (area 2 of the Economic Freedom Index) increase trust. The idea is that a market economy, building on voluntary transactions and interactions with both friends and strangers within the predictability provided by the rule of law, entails both incentives and mechanisms for trust to emerge between people.

Related content: Working Paper No. 64

Free to Trust: Economic Freedom and Social Capital
Article (with peer review)Publication
Berggren, N. & Jordahl, H.
Publication year

2006

Published in
Abstract

We present new evidence on how generalized trust is formed. Unlike previous studies, we look at the explanatory power of economic institutions, we use newer data, we incorporate more countries, and we use instrumental variables in an attempt to handle the causality problem. A central result is that legal structure and security of property rights (area 2 of the Economic Freedom Index) increase trust. The idea is that a market economy, building on voluntary transactions and interactions with both friends and strangers within the predictability provided by the rule of law, entails both incentives and mechanisms for trust to emerge between people.

Related content: Working Paper No. 64

Free to Trust: Economic Freedom and Social Capital
Artikel (med peer review)Publication
Berggren, N. & Jordahl, H.
Publication year

2006

Published in
Abstract

We present new evidence on how generalized trust is formed. Unlike previous studies, we look at the explanatory power of economic institutions, we use newer data, we incorporate more countries, and we use instrumental variables in an attempt to handle the causality problem. A central result is that legal structure and security of property rights (area 2 of the Economic Freedom Index) increase trust. The idea is that a market economy, building on voluntary transactions and interactions with both friends and strangers within the predictability provided by the rule of law, entails both incentives and mechanisms for trust to emerge between people.

Related content: Working Paper No. 64

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